Home Loan lenders offer loans for a period as deemed fit for the borrower to repay. The younger the borrower, the longer is the time he gets to repay. He also has the option to choose between the kind of loan interest viz., ‘fixed’ or ‘floating’. A fixed rate of interest obviously doesn’t change throughout the loan tenure while a floating rate of interest may be reduced or increased during the loan tenure.

Coming to loan repayment which is by way of EMI, there are certain home loan EMI repayment norms which the borrower needs to adhere to, or else, he will be termed as a defaulter.

The term ‘default’ is the failure to pay back the interest or principal on a loan or security when due. Default occurs when a debtor fails to comply with the legal obligation of debt repayment. In the case of a Home Loan, it is the inability to pay the EMI or the principal amount.

If one defaults on one or two EMI payments, the Bank would not foreclose the loan. Foreclosure is the last option which a bank exercises. But if one continues to default for three months, the Bank may seize its property, of course, this will be preceded by reminders by the Bank to repay.

As such to give a relief to Home Loan interest rate there is the Pradhan Mantri Awas Yojana (PMAY) which offers interest subsidy on the EMI amount. One of the prime eligibility criteria for PMAY is related to the borrower’s family income divided as per the following slabs;

  • l Economically Weaker Section (EWS): Up to Rs. 3,00,000
  • l Low Income Group (LIG): Between Rs.3,00,001 to Rs.6,00,000
  • l Middle Income Group-I (MIG-I): Between Rs.6,00,001 to Rs.12,00,000
  • l Middle Income Group - II (MIG-II): Between Rs.12,00,001 to Rs.18,00,000

The Home Loan EMI is decided well in advance through the Home Loan EMI Calculator, prior to which the Home Loan eligibility is determined through the Housing Loan eligibility calculator

To avoid being a defaulter, plan for all kinds of financial emergencies and keep an emergency fund ready with you. It is not only important that you are not framed as a defaulter by the Bank but it is also imperative that you maintain your credit score (CIBIL score) by paying your EMI on time.

Various Banks offer Home Loans at competitive interest rates and the EMI is decided after assessing the repayment capacity of the borrower thoroughly. From this perspective, the reason for borrowers to default is minimised or almost nullified.

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Disclaimer: This Article is for information purpose only. The views expressed in this Article do not necessarily constitute the views of Kotak Mahindra Bank Ltd. (“Bank”) or its employees. Bank make no warranty of any kind with respect to the completeness or accuracy of the material and articles contained in this Newsletter. The information contained in this Article is sourced from empaneled external experts for the benefit of the customers and it does not constitute legal advice from Kotak. Kotak, its directors, employees and the contributors shall not be responsible or liable for any damage or loss resulting from or arising due to reliance on or use of any information contained herein.