There is a joke doing rounds on internet. Entering into a mortgage is like getting married. Before you get into it you do not know how bad it can be, but all of us need it. While it is difficult to give you a list of consequences – good or bad J -- for marriage, it is not so difficult o list them out for mortgage.
When Rajesh Atmalingam, a Mumbai-based marketing professional, took a home loan, he was just 25. A couple of years later he missed three EMIs. He was shocked when his car loan application was rejected when he was 29 years old.
The reason: A negative comment about Rajesh not paying a couple of EMIs. It is very important to pay your EMIs and also to pay it on time.
We have selected top four consequences for you to keep in mind before you miss a mortgage payment:
Your CIBIL Score takes a toll
Missing a mortgage payment weighs very high on your credit score.
If there is a negative comment in your report from Credit Information Bureau of India Limited (CIBIL), a leading credit score rating agency in India, it is not a welcome sign.
To what extent it affects your score is dependent on repayment track record.
The more payments you have missed in the past, the more your score gets hurt.
But one could easily expect a 50-70 points going down for missing a mortgage payment.
You become a risky borrower
Losing 50-70 points on your credit score doesn’t mean much, from a larger perspective. But the fact that there is a comment on your CIBIL report that you have missed a mortgage payment could lead to a frown on your prospective lender’s face.
You just become a risky borrower.
Think about it, would you lend money to a friend who you know has defaulted payments in the past? Only in this case you are not lender’s friends but a customer.
Late payments and penalty
Lender normally charge 24 per cent per annum interest on the amount due as penalty for delay in payments. So whatever you do, never delay your mortgage payment.
If you have no choice but to delay, we still advice you to pay off as soon as possible and still bear late payments charges and penalty interest on days past due, but not to miss a payment.
We just now told you that one missed payment can stay on for about seven years. But it will heal after that. So you score will be repaired with time.
While paying off a debt is huge responsibility, the satisfaction one gets after clearing a loan is immense. When once we enter a mortgage, we should always look forward to closing it.
It keeps us motivated to do well in life and live a financially healthy life.
Illustration: Uttam Ghosh/Rediff.com
The author, Director & Co-founder of Creditvidya.com, is a credit expert with 10 years of experience in personal finance and consumer banking industry and another 7 years in credit bureau sector. Rajiv was instrumental in setting up India's first credit bureau, Credit Information Bureau (India) Limited (CIBIL). He has also worked with Citibank, Canara Bank, HDFC Bank, IDBI Bank and Experian in various capacities.