What Happens If You Don’t Pay Back Your Home Loan?

In addition to damaging your credit score, missing payments on your home loan will make it more challenging for you to obtain future loans from banks or other financial institutions. When you take out a loan against a piece of property, you must pay it back in Equated Monthly Instalments, which include both principal and interest (EMIs). As long as you continue making on-time EMI payments, your relationship with the bank will be unharmed.

We occasionally find ourselves unable to meet our financial obligations because of adversities like job losses or wage reductions brought on by physical disease or disabilities. The Reserve Bank of India has instituted a six-month embargo on all term loans to prevent loan borrowers from defaulting on their payments.

Check out the post to learn what happens if you miss a payment on your house loan and how to handle the problem effectively.

What Will Happen If You Don’t Pay Back Your Home Loan?

Legal Consequences: The bank may confiscate your property if you fail to make up to three of your home loan instalments. In these situations, there are certain procedures, though. In the event that you miss the first payment due on your mortgage, they won’t disturb you. The banks only send a reminder even on the second missed instalment. 

However, the bank sends you a legal notice requesting the loan payback and begins the recovery process if you skip three consecutive instalments of your house loan repayment.

Missing three successive loan payback instalments will cause your bank to designate your home as a non-performing asset (NPA). Such assets do not bring in any income for lenders, which prompts them to take additional steps to reclaim their money.

“Since a mortgage on the collateral secures every house loan, legal action to enforce the mortgage may be taken by the bank or financial institution. After attaching it, they have the option of selling the item through a public or secret agreement. 

After receiving a legal notice, banks often give you two more months to make up any missing loan payments. Additionally, if you fall behind on the same, the bank will issue you an auction notice along with an assessment of the value of your property. If you don’t begin making house loan payments before the auction date, which is one month after receiving the auction notification, the bank will proceed with the auction procedures.

You can get in touch with the bank at any moment during the course of these six months and try to settle by paying your debts.

Impact on Cibil/Credit Score: Your credit score is another factor that is damaged by missing house loan repayment deadlines. Banks give a bad financial report to the authorities assessing the credit score when borrowers fail to make loan payments. Before processing any of your loan applications, most banks and other financial lenders review your credit record to see how you handle your finances. It is challenging to borrow money from any lending organisation in the future without a good credit score.

Important Steps to Avoid Defaulting on Home Loan Repayments

Here are some steps you may take to prevent defaulting on your mortgage payments.

Restructure Your Loan: You can speak with your bank about how to restructure your house loan in accordance with your financial priorities. You might describe what went wrong and how you intend to remedy it in order to persuade the bank of the same. Making a sound financial plan with a timeframe for paying off your mortgage may also be beneficial. You may be able to lower the amount of your EMIs or postpone them for a few months by restructuring your loan. However, in this scenario, your stay will be longer. Additionally, you can request that the home loan interest rate be reduced.

Liquidate Other Investments: You might think about selling off other investments you’ve held in case of sudden cash flow. Bonds, stocks, and any investments in mutual funds are included in these assets. You can also borrow money from friends or relatives to pay off your mortgage and then pay it back when it’s convenient for you. By doing this, you can avoid paying greater interest charges for late or missed payments.

Your relationship manager can be reached at: You can speak with your relationship manager at the bank or financial institution to learn more about your options rather than closing off your contact channels. Then, you can choose the option that best fits your needs. Keep in mind that if you handle the situation sensibly, you can always regain your financial stability.

Combine your obligations: Additionally, think about consolidating.

Consolidate Your Debt: Another option is to combine all of your obligations, including your home loan payments, and take out a personal loan to pay them off all at once. Despite the fact that personal loan interest rates are greater than those on mortgages, having a solid credit history can help you achieve lower interest rates on a larger loan amount. In this manner, you can pay back your mortgage while still keeping a high credit score.

Dispose of the Property: This option can be your final one for paying off your mortgage. To carry out such transactions on your home, you would need the lender’s consent. You are to blame for this if you have fallen behind on your mortgage payments.

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