The increasing cost of real estate has made it difficult to purchase a property using savings. Thanks to a Housing Loan, it is easier to buy a house. A Home Loan comes with various benefits for the borrower. These include low-interest rates and easy availability of loans. Due to their secured nature, House Loans have simple documentation and high loan-to-value. And in case the borrower fails to repay their House Loan on time, there will be consequences. Here is what can happen if you fail to repay your Home Loan. With Finance HQ asset finance, NZ businesses have an easy gateway to raise money to expand their business, in contrast to traditional loans.
Result of Non-payment of a Home Loan
When you fail to repay your Home Loan, you might face the following consequences –
- Legal implications of Home Loan repayment default: When a borrower cannot pay up to three House Loan EMIs (Equated Monthly Instalments), the bank will take certain legal actions. First, the bank may seize the property of the borrower. In such an event, the bank follows some procedures. The bank doesn’t take such legal actions when a borrower misses out on the first instalment. And upon missing out on the second instalment payment, the bank sends a reminder. But, when a borrower misses the third consecutive EMI, the bank sends a legal notice to begin the loan recovery process.
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- Declaring the property as an NPA (non-performing asset): Failing to make three consecutive payments for Home Loan EMIs, the bank declares your property as a non-performing asset. A non-performing asset does not give any income to the House Loan lender. It means they can take subsequent actions to recover the money they have provided as a loan.
- Seizing of the borrower’s property: Once the lending bank has sent a legal notice to the borrower, there are two more months to pay the due instalments. The bank will send an auction notice when a borrower does not act on this. It contains the approximate value of the property. The property auction date is set one month after the borrower received the auction notice. The bank proceeds with the auction formalities if the borrower does not start the loan repayment before the auction date.
Note – You can contact the bank at any time during this period of six months to try and make a settlement with the bank by clearing the dues.
- Impact on the credit report: Not repaying a Home Loan can do long-term damage to your credibility. The unpaid loan prompts the bank to send a negative financial report to the credit rating authorities. These authorities create the credit report of every qualifying individual. An unpaid House Loan leads to a negative remark in your credit history and reduces your total credit score. A negative credit report and a low credit score can make it difficult for you to get loans, insurance plans, or credit cards in the future.
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How to Avoid Home Loan Default?
Do not panic if you have been unable to repay your Home Loan, and follow these measures to handle the situation calmly:
- Restructure the Home Loan: Contact the lending bank to discuss ways your Home Loan can be restructured. Tell them what went wrong and explain how you can fix it. A well-thought-out loan repayment schedule helps you avoid repayment failure. Restructure your House Loan for a longer tenure so that your monthly payments would be deferred by a few months.
Also Read: What Is A Home Loan & How To Repay It Faster?
- Liquidate other financial holdings: You can consider liquidating your other financial holdings, such as shares, mutual funds, bonds, employee provident funds, or fixed deposits. You can borrow cash from relatives or friends to save yourself from the consequences of Home Loan default.
- Consolidate all your debts: Consolidate your debt using Loan Against Property and Personal Loans. This way, you can repay the Home Loan debts. It would save your credit score from taking a dip and help you deal better with your loan repayments.
Always assess your repayment capacity before applying for a Home Loan. Take only as much loan as you can comfortably pay back to avoid the negative consequences of unpaid loans.
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