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Home > Business > Business Headline > Personal Finance


Missed your home loan EMI?

May 06, 2004 14:46 IST

Loss of job, medical expenses and other life-altering occurrences can happen to anyone, causing us to fall behind in our loan repayments. If we neglect paying our credit cards it hurts our credit rating; if we regularly neglect our home loan payments severe implications could follow.

In case you default on your home loan repayments the financiers undertake some measures to recover the amount. The usual follow-up is somewhat like this:

  1. Soft calls where the financiers follow up by sending the collection agents to recover the due amount.
  2. Then the financiers follow up with the person who co-signed the loan documents.
  3. During the course of repayment, the house is the collateral, implying that it is not wholly the owner's property till the loan is fully repaid. The consequence of a default in payment is that the borrower loses possession of the house.

According to the Securitisation Act, housing companies have the power to take over the house of the defaulting customer, just by lodging a police complaint. The financial institution can classify the asset secured or mortgaged as a non-performing asset and give a 60 days notice to the borrower.

If the borrower fails to discharge his liability within this duration, the lending institution has four options. It can:

  • Take possession of the asset, including the right to transfer by way of lease, assignment or sale for releasing the asset; or
  • Take over the management of the asset of the borrower; or
  • Appoint any manager to manage the asset; or
  • Require any person to pay the secured creditor so much money out of the asset as is due to it. What's more, all the costs, charges and expenses incurred for carrying out this procedure would also be recoverable.
Redressal

If you are planning to seek redressal after defaulting on your Equated Monthly Installments, you have to file an appeal to the Debt Recovery Tribunal within 45 days.

If the DRT passes an order against you, then an appeal has to be filed before the Appellate Tribunal within 30 days of receiving it. If it is held in appeal that the possession of the asset taken by the secured creditor was wrongful, the Tribunal or the Appellate Tribunal may direct its return to the borrower, along with appropriate compensation and cost in his favour.

What are your options?

It is not necessary that you have to land into a legal battle with your financier, unless the financier initiates legal proceedings against you. Contact him as soon as you know your payments will be overdue. Never ignore the financier's letters and do not assume you are in a hopeless situation. Financiers do not want to foreclose and will usually work with you to get your account back on track.

These are some of the steps, which you can take to keep your cherished possession with you.

1. Talk to your financier

When you are going through a foreclosure, your lender may seem like the last place to turn for a sympathetic ear. On the contrary, you may find your financier to be most cooperative. Why? Because they don't want you to default on your loan any more than you do.

Financiers make money by collecting your principal and interest payments, not by foreclosing on homes. If you present your circumstances to them along with a reasonable plan that will offer you temporary relief, they may just be willing to help.

2. Balance Transfer

Perhaps you bought your home when interest rates were high and, therefore, your EMI is high. You may be able to solve your cash flow problem simply by refinancing your debt at a lower interest rate. Shop around for the best deal on balance transfer.

3. Lower your payments by changing your payment plan

By increasing your repayment period you could substantially reduce your monthly installment. If you have taken the loan for 10 years then you can extend it to 15 years. But remember that even though your monthly payment may decrease, you'll pay more by way of interest since it will take longer to pay off the loan.

4.Balloon repayment scheme

You also have the option of paying lower EMI in the initial years and a balloon payment of as much as 30 per cent of the finance amount in the last installment so that the major burden can be shifted to the later years. The companies do keep bringing out new schemes and change the schemes on a regular basis.

So you should plan out your loan repayment plan in advance to avoid foreclosure or ending up in a legal battle with your financier.

Money Simplified is an online quarterly guide from personalfn.com. The latest issue -- 'Save, Spend, Invest' -- deals with the smart way to plan your finances. For a free download, click here.




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