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  • Home Loan Restructuring After EMI Moratorium Ends on 31 August

    The Reserve Bank of India (RBI) had granted a moratorium on the Equated Monthly Instalments (EMI) of retail loans, which included home loans. This started from 1 March 2020 and ends on 31 August 2020. This was a measure to help tide over the financial challenges faced by people in the wake of the Covid-19 pandemic who had suffered job losses or salary cuts.

    With the moratorium granted by the RBI ending on 31 August 2020, banks are now working on various restructuring options for home loans which will help home loan borrowers to keep paying their EMIs even in the midst of the unprecedented financial challenges.

    Restructuring of Home Loan EMIs

    Some of the solutions being discussed by banks are the following:

    • Deferment of EMI for a few months
    • Step-up EMIs where there is a lower payout for the next few years

    Points to Note

    Some of the important points to note about the new home loan EMI payment plan are the following:

    • Banks have requested the RBI for one-time restructuring of loans
    • Banks do not want to classify defaulters as non-performing loans
    • Banks do not want to attach assets in the midst of the pandemic
    • Banks will submit their proposals to their respective boards by September
    • There was no penal interest or negative impact on credit history if the EMI moratorium was availed but with the home loan restructuring options, it is important to be regular with EMI repayments

    Home loan interest rates for restructured loans

    The interest rates on home loans that have been restructured may be higher. This is because banks have to make an additional 10% provision on restructured loans. This may result in the interest rates on such loans being higher by up to 30 basis points.

    Options for Home Loan Repayment after the EMI Deferment

    Home loan borrowers have a number of options in front of them to choose from after the EMI moratorium ends on 31 August.

    For those who have availed the moratorium, they could do the following from 1 September 2020:

    1. Pay off the interest accrued during the moratorium period in one single payment to the bank
    2. Request the bank to add the accumulated amount to their existing EMIs and start payments monthly
    3. Request banks to keep the EMI the same but extend the loan tenure to cover the pending payments over the moratorium period
    4. Convert the accrued interest into a separate loan and pay the bank

    It will help to save money in the long term if the additional debt that was incurred due to availing the EMI moratorium is paid off within one year of the moratorium ending. The ideal amount to repay within the next one year would be at least 120% of the EMI that was deferred during the moratorium. By making these pre-payments of EMI regularly, home loan borrowers can save on interest and also cut down otheir repayment tenure.

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