Good News! You Can Pause Your Home Loan EMI for 3 Months

Last Updated : March 27, 2020, 8:27 p.m.

Paying heed to the request of the government asking it to relax loan EMIs for borrowers amid the financial stress caused to them due to the Covid-19 Coronavirus pandemic, the Reserve Bank of India (RBI) has made an announcement wherein all retail loan EMI payments can be allowed to pause for 3 months with respect to the outstanding balances as on March 1, 2020. All banks, non-banking financial companies (NBFCs) are permitted to provide their customers a moratorium period of 3 months on EMI payments. The retail loans also include home loans. The move comes as a big relief to all those facing financial stress in the wake of the pandemic. Let’s not believe that you are given any EMI WAIVER as such. So, how will the latest move pan out for your home loan ? This is what this article is for!

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The Likely State of Your Home Loan During the 3-month Moratorium Period

The exact financial term for this EMI pause is called moratorium. So, you can be allowed a relaxation for 3 months, which should complete in June end of 2020. As there is not much clarity on it, speculations are on the rise, plus experts are divided in their opinions. Some are saying the EMIs will be automatically shifted by another 3 months, whereas others say the decision to shift is left to the discretion of banks. Latter, if followed, will mean the borrowers have to show the proof of the loss of income due to coronavirus pandemic. The RBI is expected to release guidelines on the moratorium of 3 months soon. The moment the guidelines release we will have a clear outstanding on it.

What’s Likely to Happen after the Moratorium Period is Over?

Once the moratorium period gets over, borrowers can pay the lump sum EMI payments of the 3 months. They will also have the option to increase the tenure by another 3 months. So, if your home loan was about to end in say March 2022, it will end in June 2022.

Shall You Opt for the 3-month Moratorium Period?

This question might take you by surprise as the moratorium on loans is a commendable decision in light of the financial conditions that exist now. But a lot, particularly the salaried, are working from home and are assured of their salaries on time. And, if the bottomline of an organization is maintained even in the lockdown phase that is in force now, employees will have no problem in getting their due bonuses and increments. This will make you wonder whether holding on the EMI for 3 months will benefit you. After all, the interest of the moratorium period will be added to the outstanding principal. So, you can put your regular income to good use by paying off the EMIs. Those who are losing earnings due to the economic pressures triggered by the pandemic can take comfort from this RBI move. It’s mostly the self-employed who must be facing such a situation.

The Latest Repo Rate Cut of 0.75% Will Only Add to Your Cheer!

If the 3-month moratorium period brought relief to many facing home loan repayment problems due to the loss of income, the latest 75 basis point cut in the repo rate by the RBI in its monetary policy meet, which got advanced to March 24-27, 2020, will further add to their cheer. With the latest cut, the Repo Rate, the rate at which the apex bank lends to commercial banks, stands at 4.40%. Not only that, the RBI has also cut the Cash Reserve Ratio by 100 basis points to 3% from 4% earlier. The decrease in CRR means banks will have to park less funds with the RBI on which they get no interest from the apex bank. So, they will have the liquidity to pass on the benefits to consumers.

Repo-linked Lending Rate of Home Loans Will Fall in the Same Proportion

Ever since banks have adopted the repo-linked lending rate method, home loan rates have fallen in the same proportion to the tune of the repo rate cut. The 75 basis point i.e. 0.75% cut will mean the home loan rates could fall close to 7% per annum, resulting in massive savings for the borrowers. The interest component of your EMI will reduce significantly and that will mean more payment of the outstanding principal. We have already explained how the home loan rates will pan out post this decision from the RBI here https://www.wishfin.com/latest-updates/rbi-cuts-repo-rate-home-loan-emis-set-to-fall/

And when that happens, the chance of finishing the home loan quickly will be huge. Many rating agencies have downgraded India’s economic growth forecasts for the year. To lift the economy from the lows, the central bank could cut the repo rate further and add more to your savings.