The Reserve Bank of India (RBI), on 27 March, allowed all financial institutions to offer a moratorium of three months on the repayment of credit card dues and term loans including home loan. The step was taken with an aim to provide a temporary financial relief to all those who could be struggling with liquidity issues amid the COVID-19 lockdown. The details of the offer have now started to emerge on the lenders’ websites but there is a lot that you must understand before you go for moratorium.
What exactly is “Moratorium”?
Moratorium does not refer to waiver of any kind. It is simply a legal authorization given to existing borrowers to postpone the payment of their loan EMIs for pre-determined period, which in this case is of 3 months starting from 1 March 2020 to 31 May 2020.
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What will happen I opt for moratorium?
Home loan borrowers who will avail the moratorium offer will not have to make their home loan EMI payments from 1 March 2020 to 31 May 2020. However, the interest will continue to accrue on the principal outstanding for the period of the moratorium. And when the moratorium ends, it will be added to the principal amount. The loan tenure will also extend by the corresponding period for which the moratorium has been availed.
| Home loan borrowers who have already paid their loan instalments for the month of March will get the benefit of only two months. |
Is opting for moratorium a good idea?
There are many home loan borrowers who do not have a regular cash source of income. The moratorium offer allows borrowers to defer their home loan EMI payments for three months so that they can tide them over till national lockdown. Salaried individuals who might face pay cut, delayed salaries or layoffs due to the COVID-19 lockdown can also benefit from this facility.
Borrowers should choose to opt for the moratorium only if their salary has been severely impacted. They will need to pay the outstanding amount along with interest accrued on it once the moratorium period is over. Since home loan is a big-ticket loan, this amount may become significant. Here’s how:
Example: Let’s say your outstanding home loan amount is Rs. 30 lakh at 10% p.a. and your remaining tenure is 10 years. In such a case, the interest calculation will go as below:
If you do not opt for moratorium
| Total interest payable for 10 year loan tenure | Rs. 17.57 lakh (approx.) |
| Total amount to be repaid (Outstanding principal + Interest) | Rs. 47.57 lakh (approx.) |
If you opt for moratorium
| Extra interest incurred during the moratorium period of 3 months* | Rs. 75,626 |
| Interest payable over the remaining loan tenure (10 years) | Rs. 17.57 lakh |
| Total amount to be repaid (Principal + Interest + moratorium period interest)** | Rs. 48.33 lakh |
Note:* Additional interest incurred during the moratorium period of 3 months = 25,000 (1st month interest) + 25,208 (2nd month interest) + 25,418 (3rd month interest) = Rs. 75,626
**The above example is for illustrative purposes only and actual values/calculation method may differ from one lender to another.
Thus, as per the example, you will have to pay an additional interest amount of Rs. 75,626 for taking the 3-month moratorium on home loan EMI payment. This amount can be much higher if your loan amount is higher along with the home loan rate of interest. And if due to any reason you are unable to pay the total due at the end of the moratorium, the interest will keep adding. And will increase your loan burden.
Will choosing moratorium affect my credit score?
Under normal scenarios, if loan repayment is deferred then the borrower’s credit history and risk classification of the loan will be affected. However, in this case, rescheduling of loan repayments will not be treated as default. Therefore, it will not affect borrowers’ credit score or the risk classification and other existing terms and conditions of the loan.
What if I have already paid EMIs but would like to avail the moratorium?
Even if you have paid EMIs for all three months, you can still avail the benefits of the moratorium. Simply, inform your lender and the amount will be refunded to your bank account.
How to opt for moratorium on my home loan EMIs?
Each bank has its own process to opt for the moratorium. For most lenders, skipping your home loan EMI payment during this period would imply that you require moratorium till May 2020.
Some banks have shared how the moratorium will be implemented, others are expected to announce soon. Hence, borrowers must keep abreast with all loan-related communication from their lenders.
The table below shows how to go about the moratorium offer for some leading home loan providers in India:
| Bank | How to Opt for Moratorium on Home Loan EMI |
| HDFC Bank | Call on 022-50042333 or 022-50042211 and follow the instructions (or) Submit your request on the bank’s website |
| SBI | Send an email to ask for moratorium. Click here for more details |
| ICICI Bank | By providing consent through their webpage. Click here |
| PNB | Automatic relief on missing payments |
| Axis Bank | By providing consent through their webpage. Click here |
| Kotak Mahindra Bank | Automatic relief on missing payments |
| Bank of Baroda | Automatic relief to all consumers. But those with Standing Instructions/ECS/NACH must approach the base branch via mail or letter to stop their EMIs from getting deducted |
Note: If you do not find your lender in the list above, contact their customer care number for details on COVID-19 Moratorium Period.
What if I do not want moratorium?
Availing moratorium on your loan EMIs is not compulsory. Borrowers can choose to opt or decline the facility.
Most banks do not require any action from borrowers who do not want to opt for moratorium facility. However, skipping your EMI payment during this period will mean that you require EMI moratorium till May 2020. So, if you want to avoid extra interest charges and tenure extension, continue paying your home loan EMI on time.
Since each lender has its own regime around moratorium. It is advisable to directly consult your loan relationship manager to get further clarity on how to decline the facility.
