How to manage your housing loan EMI in the job loss market?
We are sorry to inform you that you are no longer required to report to duty , effective from tomorrow” these are the two lines of threatening message to every employee in the IT industry nowadays.
Rapid adoption of advanced technologies in the post Covid era is the primary reason for many job cuts which couples with the slow demand world wide.
Most of the IT employees have taken housing loans and paying the hefty EMI and a sudden job loss would definitely impact their lifestyle. During a tough time like this we need to know how to manage our EMI or settle the loan quickly and get out of the trouble quickly.
As a word of caution , don’t fall into the trap of getting a higher loan for property. Try to go for maximum down payment and keep the loan amount as low as possible. Few banks are offering up to 100% bank loan for villa plots in Chennai and few are offering upto 90% for gated community flats but don’t fall for it. By having a CIBIL higher than 750 its is easy to get the loan sanctioned but paying back is really a mental torture.
When you face a situation like job loss you have to take the lending authority into confidence first. Lenders are typically more interested in collection than legal proceedings. Legal proceedings take time and money from both sides so they would be interested to negotiate with you first and settle the issue. Speak to them for restructuring, EMI free period or reducing the interest rate. By doing this you can manage the EMI or repay the principal amount which ultimately reduces interest on the loan.
Here we have some tips on how you can navigate this difficult situation.
- Get Moratorium Period :
It is the EMI free period, it varies from 3 months to any period based on the lender. During this period you need not pay any EMI, lenders will give you time to stabilise but the interest on the loan during this period accumulates and you have to pay it at the end.
During Covid lockdown Central Banks have announced a moratorium for many lenders and I am also the one who benefitted from this scheme. To avail this you have to state the valid reason on why you are unable to pay the EMI.
- Loan Restructuring :
This means modifying the loan terms to make it more affordable for the borrower. The bank may offer to reduce the EMI and extend the loan tenure , or provide a lower interest rate.
Again by extending the duration , you may end up paying more interest at the end. If you are opting for restructuring get the complete repayment schedule from the bank and check whether the extended duration and added interest are feasible for you to repay. It is only a temporary relief measurement.
- Loan refinancing
It is transferring the loan from the existing lender to the new one who offers a low interest rate. To achieve the loan disbursal target, banks encourage loan refinancing at a reduced interest rate with EMI free period in some cases.
You can check with other bank branch managers for loan refinancing.
- Partial and Prepayments:
The borrower can make the partial payments towards their outstanding EMI if they are unable to pay the EMI in full. This will reduce the outstanding balance and the interest charges on the housing loan.
If you have some savings or gold pledge it and make a partial prepayment. This will reduce the balance outstanding and result in lower EMI.
- Severance Package:
In most companies employers pay a severance fee in case of sudden layoffs. Generally the severance amount is equal to the employee’s salary for the notice period. You can use this amount to pay EMIs for a few months.
- Use your PF account :
Government has allowed a non-refundable withdrawal from PF account. You can borrow 3 months of basic salary and DA or 75% of the PF balance whichever is less. You can use this to pay the EMI or towards the principal to reduce the interest rate.
- Loan against investment:
You can pledge your investments such as fixed deposits, stocks, insurance policies and government bonds. These investments can play a crucial role during a crisis. Although the interest rate against these securities are higher than the home loan , it will compensate for the penalty one has to pay incase of default.
You can also get a loan against the insurance policy when compared to a personal loan the rate of interest is lower. Moreover the insurance company will disburse the loan quickly as it already has your details. You can use this money to pay your EMI.
These are the few ways through which you can reduce the interest rate or defer the EMI payment during the job loss.
If you are unable and stuck to pay the housing loan don’t think twice just sell your property and settle the loan amount. It’s ok, you can buy it later but don’t live with the pain.
