Home loan moratorium period: What is it, and why is it important? 

July 18, 2022 . Home loans . 10 min read
moratorium period

The decision to get a home loan in order to finance the purchase of a home is a significant step financially. Moreover, depending on how many other financial obligations you have, it may not always be possible for you to begin the repayment process quite immediately. It’s also possible that you’ll need to postpone the repayment of your home loan if your investment project is delayed because of construction issues. That’s where the home loan moratorium period comes into the picture.  

What is a moratorium period?  

During a moratorium period, the borrower is exempt from making a monthly EMI payment on their home loan. This implies that you are not required to immediately begin making payments on your home loan. Instead, you might use an EMI holiday before restarting your payments. Financial institutions provide this option so that borrowers may improve their financial planning and get more familiar with the tedious obligations of a home loan in a way that is more straightforward. 

What does the home loan moratorium period mean? 

Although the word ‘moratorium’ was more often associated with student loans in the past, even housing loans now come with a predetermined moratorium period. For example, if the development is delayed for whatever reason, the bank may let you take a break from making your monthly EMI payments, provided it is specified in the home loan agreement 

Once the borrower receives a home loan amount, their tenure for loan repayment starts from the date mentioned in their loan agreement. The repayment of the loan is made through Equated Monthly Instalments (EMIs). Moratorium period is when a borrower does not have to make any payment to the financial institution from which the loan was taken. However, the borrower will still be liable to pay interest generated during this holiday tenure. 

In a situation where the possession of the house gets delayed then banks can allow you to go on an EMI holiday, based on the agreement finalised between the bank, developer and the buyer. There is a period of 18 months or until one month after the facility is completed, whichever comes first. The time period might be as little as one month for properties that are already prepared for occupancy.  

However, one should not confuse the meanings of a moratorium and grace period. While both of these facilities are time-based and offer you a time advantage in loan repayment, both serve fundamentally distinct purposes. A grace period is usually an extended time given to the borrower to clear any dues. 

However, you may be eligible for a reduction in the interest rate on the loan if you start making payments before the whole loan amount has been disbursed. 

Things to consider before deciding on a moratorium period 

  • This grace period may seem appealing to prospective homebuyers, but they should be aware that they are still obligated to make interest payments during this time. The interest payments may be assessed on a monthly, quarterly, or one-time basis, depending on the terms of the loan. 
  • A borrower’s total EMIs is increased by the interest incurred during the moratorium period, and the resulting new EMIs are recalculated. Typically, the interest rate might climb to 10% of the entire principal and interest amount. 
  • A strong connection exists between the No EMI plan and the Moratorium Period scheme. Under the No EMI plan, the interest on the loan is covered by the developer until the time when the buyer really takes ownership of the house. When it comes to deciding how long the grace period will be, the bank and the developer engage in discussion and negotiation. Even if the overall loan amount has not changed, the developer will be responsible for paying any interest that accrues during the moratorium period. 

Is your EMI impacted in any way by a moratorium? 

You have the option of paying the moratorium interest when it is charged, i.e., during the moratorium period. As the interest has already been paid, this circumstance will not affect your EMI.  

Another payment option that won’t affect your EMI is choosing to pay the interest due during the moratorium period following the initial EMI schedule. In this manner, your monthly instalment payment would stay the same, and the only thing that would change is the tenure of your loan. 

If you don’t use the above-mentioned options, your EMI will be affected. After that, the interest that has accumulated will have to be compensated by increasing your EMI payment.  

Is a moratorium right for you? 

If you’re facing financial hardships, the moratorium has the potential to provide some much-needed respite.  

However, if your present financial situation allows you, continue to make payments on the loan. Due to this, you won’t have to worry about carrying an extra interest load when the moratorium time is up. 

If you are still in the beginning stages of repaying your home loan, it is in your best interest to keep making your EMI payments. This is because interest often accounts for a larger amount of the EMI in the early phases of the loan.  

Conclusion  

The management of one’s finances is, in fact, a route that is challenging and calls for perseverance in order to navigate it successfully. Therefore, it is essential for you to exercise extreme caution when it comes to the management of your finances, and this is particularly true in the event that you have chosen to get a home loan, which is a long-term commitment. A loan moratorium might make it easier for you to lay out a repayment plan without feeling rushed. 

Decide on your future home and apply for your down payment financing at HomeCapital as soon as you’ve finished comprehending the moratorium period. By filling out the online application, you may acquire a no-interest loan for up to 50% of the down payment amount. You can repay the loan in a variety of ways that suit your requirements. 

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