Guide to manage your Home loan EMIs during COVID times

The COVID-19 crisis has triggered unprecedented economic uncertainty in India. In such situations, if you have a financial liability such as long tenure home loans, it can be an uphill task for home loan borrowers. This is especially true in the present situation when layoffs and salary cuts are very common. Nonetheless, here we are suggesting some of the simple tips and tricks that will help you in managing your financial liability without any hassle.

Home Loan EMI Moratorium

The Reserve Bank of India had announced an EMI moratorium for term loans, including housing loans. The moratorium which is also known as an EMI holiday had started on 1 March 2020 and ending on 31 August 2020. The borrowers can leverage the moratorium facility to reduce their existing liability.

The EMI moratorium was a choice given to the home loan borrowers to exercise. If they chose it, it meant an exemption from paying the home loan EMIs for the period of the moratorium without affecting their credit scores and without a negative impact on their credit history. Also, this will not have any adverse reaction from the lenders if you are not able to pay your EMIs. 

The RBI has not yet announced any extension on the EMI moratorium period beyond the last date of 31 August 2020, which means that if you have chosen the EMI moratorium, you will have to start paying your home loan EMIs from September. How can you ensure that you will continue paying your EMIs while also having enough to cover for the rest of your household expenses?

The below given are some of the ways-

Lower your home loan interest rate

One of the best ways to manage your home loan EMIs during the pandemic crisis is to negotiate with your financial institution or bank to lower the home loan interest rate. There might be a possibility that they consider your negotiation if you have been making your loan repayments on time before the starting of the pandemic. However, the banks will lower their lending rates if you have taken a fresh loan or it is based on a floating rate of interest.

Make a switch from fixed interest rate to floating interest rate

If you have taken a home loan at a fixed rate of interest a long time back. In that case, you can request your lender to switch your loan to a floating rate of interest by paying them a small conversion fee.

Opt for a balance transfer

You can also apply for a balance transfer home loan, where you can transfer your home loan to another lender who is offering the loan at a lower rate of interest than your current lender. You might have to pay a small fee to avail of this facility which may vary from one bank to another.

Withdrawal from your Provident Fund account

The Labour Ministry in March 2020 has announced that the subscribers can withdraw a portion of their retirement savings from the Employees Provident Fund Organization (EPFO) account. As per the gazette notification, subscribers can withdraw up to 75 percent of their savings or up to the three months’ basic salary and dearness allowance (DA) from their provident fund account, whichever is lower. The best part of the scheme is that the request for fund withdrawal is processed within three days.

Home loan overdraft facility

A loan overdraft facility linked with your home loan account allows you to deposit an additional amount into your loan account over and above the regular EMI. The surplus amount deposited is treated as pre-payment towards the loan, and thereby reduces the interest on the outstanding amount. Moreover, you can withdraw the extra amount whenever you require, and the interest on the outstanding loan gets automatically balanced. However, you need to do a cost-benefit analysis before availing of this facility.

Liquidating your savings

Another way to pay off your home loan EMIs is by liquidating your savings, which could be your fixed deposits or other savings instruments. However, before taking such a step, you need to analyze the pros and cons of doing so.

You can choose from any one of the solutions listed above to help you manage your home loan EMI during these challenging times.