Following the COVID-19 pandemic, there has been much flux in the global economy. The Indian markets are not untouched by this phenomenon. Several corporations have announced hiring freezes, salary freezes, and even layoffs.
The loss of employment can be a difficult scenario, particularly if you are faced with a large monthly EMI burden.
Here are five ways to tackle your home loan EMIs in case of a job loss.
Tackling EMI payments
- Negotiate deferral with the lender - Non-payment of EMIs over a long period of time may prompt the bank, NBFC, or lender to initiate foreclosure proceedings. Just as this may cause a huge financial loss to you, it is also not a favourable scenario for the lender. If you have lost your job and the EMI payments seem to be a huge burden, approaching the lender and negotiating a deferral is a good idea. Most banks are agreeable to this idea depending on the loan amount repaid to date, your repayment history, and your net worth.
- Debt restructuring - Another negotiation your bank or housing finance companies may be open to is debt restructuring. This simply means changing the terms of the loan, such as tenor or interest rate. The lender may agree to extend the loan term, thus reducing the monthly EMI payment amount. If you have had a long and good relationship with the bank and have other assets and investments, the bank may also temporarily agree to reduce the interest rate.
- Sale of assets – Along with buying a residential property or home, most of us invest in assets like mutual funds, equity, and bonds. Most of these are liquid assets that can be partially sold to repay a considerable part of the loan. This will bring down the monthly repayment amount. This option should only be considered if the property value is high and the asset appreciation is lower than the property price. It may be a good idea to consult a financial advisor for this option.
- Dipping into savings – Job loss puts financial pressure on several fronts. This is a good time to dip into your severance package, Fixed Deposits, Provident Fund or any savings you may have built up to repay the bank loan partially or wholly. Doing this will considerably bring down the monthly EMI burden, alleviating your financial stress. It is also important to understand the terms of your loan and negotiate this prepayment with the bank.
- Loan refinancing – Loan refinancing often refers to the process of taking out a new loan to help repay the old one. In the case of home loans, this may be difficult since home loans have the lowest interest rates. If you are confident of your employment prospects and need a temporary loan to tide over a few months, taking a personal loan or gold loan may be a good option, though. Alternatively, you may consider transferring your home loan to a different bank or lender with a lower rate of interest.
Insurance on loan
If you are employed and are looking to buy a residential property in Mumbai or any other major city and are worried about the long-term implications of taking a home loan, it is a good idea to consider taking an insurance policy on your home loan. Opting for home loan insurance can increase the monthly expenditure in the form of insurance premiums, but it also brings a lot of relief in case of death, disability, or loss of income, affecting the EMI payments on your home loan. Moreover, unlike term insurance, home loan insurance only covers the home loan debt and lasts as long as your home loan tenure. Therefore, the premium on this type of insurance, too, is less than term insurance.
Things to avoid
In case of a job loss and financial stress, EMI repayments may become difficult. This is not the time to avoid calls from the lender or cut-off communication. It is best to voluntarily approach the bank or lending institution to work out a mutually agreeable solution. This is also not a good time to remain inflexible in your financial plans. Some restructuring, reallocation, and flexibility can help tide over a rough patch.
Need for financial planning
Buying a home is a joyous and emotional decision, but it also has a huge and far-reaching financial impact. Most of us opt for home loans because it is a prudent option and comes with several tax benefits. Before opting for a home loan, though, it is important to undertake some research and plan your finances. While repaying the EMI on time is crucial to fulfilling your debt burden and keeping your credit score buoyant, it is also important to save and invest prudently to help you handle any adverse scenarios like the loss of a job.
