What is Home Loan Moratorium?

Taking a home loan in India to finance your house purchase is a big step when considered financially. However, initiating with the repayment almost instantly is not always a feasible option owing to your other financial responsibilities. Moreover, you might want to defer your home loan repayment in case you see a construction-related delay on the project that you have invested in. In such a situation, you can get considerable benefit from the home loan moratorium period that is allowed by your money lender.

But in case you don’t know much about the home loan moratorium, then this article is for you! In this post, we will discuss everything about the home loan moratorium period in detail. Let’s begin with its meaning!

Meaning of Moratorium Period

A home loan moratorium period refers to the duration when the borrower does not have to make the EMI payments of the home loan. In simple words, this means that you don’t have to start repaying your home loan as soon as the loan gets disbursed to you. Rather, you can avail of an EMI holiday and start paying EMIs after a certain break. Moneylenders generally offer this facility to help you plan your finances better to get acquainted with the lengthy obligation of a home loan in a more formal and organised manner. 

In other words, we can say that the moratorium period is the period in any loan where the borrower of the loan gets a break from making the EMI payments. It is also referred to as an “EMI holiday” since there’s no pressure of paying the monthly loan instalments during this specific period. 

Moratorium periods are generally common in the case of education loans where the students can start paying off the EMI 6-12 months after completing their education since they don’t have a regular income during their years at college, and it takes time until they can find a job opportunity.

Under a home loan, in case of delayed construction, money lenders allow the borrowers to encash their moratorium period facility but only if this clause is involved in the home loan agreement between the borrower, lender and property developer. For under-construction real estate, lenders usually offer a grace period of 18 months or one-month post possession, whichever is earlier. However, in the case of ready to move properties, the grace period is only 1 month. 

Homebuyers can opt for a moratorium period if the project they have invested in is delayed. They are not in a position to double their monthly outflow for their living arrangement, i.e. home loan EMIs and paying rent for the current premises. The moratorium period on home loans allows the borrowers to maintain their budget since it gets pretty challenging for them to pay both home rent as well as a high amount of EMI payments. 

Benefits of Moratorium period on Home Loans

The benefits of a moratorium period on home loans involve the following:

1. Moratorium period on a home loan does not affect the credit score of the borrower. Thus, it makes sure that the borrower can flawlessly procure another loan in future without any black spot in their credit history.

2. Moratorium period removes the stress and tension of paying back EMI during the period where you can reestablish financial stability. This is an excellent feature in case of any medical emergency, a big purchase of a similar situation.

3. Often, people take moratorium periods before the beginning of the loan repayment period. This offers them support to handle the important time-sensitive costs that accompany house settlement like rent payment of the current accommodation, construction etc. 

How to Pay Back Interest Generated During the Moratorium Period?

You can choose to pay back the interest amount in any of the following 3 ways stated below:

Way 1: During the moratorium period itself

You can pay back the interest generated during the moratorium period. So, when the moratorium period ends, you can easily resume paying back the EMIs.

Way 2: Clubbing the amount with EMIs

Borrowers can club the amount of interest by dividing it and clubbing it with the pending EMIs. Once the moratorium period ends, the EMIs will be more than what you paid earlier since these will involve the interest amount generated.

Way 3: After the loan tenure

Lastly, you can opt to pay the amount of interest once all your EMIs have been duly paid. On the basis of your terms with the moneylender, you can further divide this amount into instalments and pay it periodically. 

A home loan moratorium period is a great facility to support you in hard times, especially in case of a financial crisis. Before you take the home loan, make sure you clear all your doubts about the moratorium period as offered by your lender. You must be comfortable with the rates of interest and any other accompanying conditions. Once you are fully satisfied, you can then plan when to take this EMI holiday period.

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Also read: Top 10 FAQs on Home Loans in India