Taking a home loan to finance your home purchase is a big financial step. However, starting with the repayment almost immediately is not always a feasible option owing to your other monetary responsibilities. Additionally, you may want to defer your home loan repayment if you see a construction-related delay on your investing project. In these situations, you can benefit from the moratorium period on your home loan allowed by your lender.
What is a moratorium period?
A moratorium period is a duration when the borrower doesn’t have to make the home loan EMI payments. This means that you do not have to start repaying your home loan as soon as your loan gets disbursed to you. Instead, you can avail of an EMI holiday and begin paying EMIs after a break. Lenders offer this facility to help you plan your finances better to get acquainted with the lengthy obligation of a home loan in a more organised manner.Bajaj Finserv, for example, grants a 3-EMI holiday on a home loan up to Rs. 15 crore*.
What are the benefits of a moratorium period?
Having an EMI holiday or a moratorium period at the start of yourhome loangives you ample time to plan your finances. During this time, you can plan your income and expenditure to consider your home loan EMIs. You can use the time to pay for other home-related expenses such as stamp duty, registration and brokerage, or simply save money for your subsequent EMIs. Additionally, a moratorium period benefits you by providing you enough time to switch jobs or fund the immediate expenses you incur after shifting into your new home.
Now that you know about an EMI holiday or a moratorium period, see how you can avail of this break on your home loan.
How to avail of a moratorium on your home loan?
The terms and conditions for the moratorium period on your home loan can vary across lenders. To avoid confusion and make the best choice, look for lenders that offer a good break during the initial years of the home loan tenor.Remember to compare home loan interest ratescarefully as many lenders, to make up for this break, may increase the interest rate once the holiday period is over.
Once you have decided on your lender, speak to them regarding your needs and clarify all other charges and procedures in advance to ensure you get easy repayment terms through the entire tenor, even after the EMI break.
Apart from availing of a moratorium another way to enjoy paying lower EMIs is to opt for a variant such as a Flexi Hybrid home loan where you pay interest-only EMIs in the first few years (up to 4 years) of your home loan tenor. This also helps you adjust to EMIs conveniently and begin paying full EMIs once your income also increases.
Additional Read: 3 Simple steps for effective home loan management
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FAQs
A moratorium period is a duration when the borrower doesn't have to make the home loan EMI payments. This means that you do not have to start repaying your home loan as soon as your loan gets disbursed to you. Instead, you can avail of an EMI holiday and begin paying EMIs after a break.
What is the moratorium period in home loan? ›
A moratorium period in home loan is a specific time frame when a lender allows you to stop making payments temporarily. It is typically granted in cases of financial hardship or specific circ*mstances. Unlike a grace period, interest may still be charged during the moratorium period.
Why is moratorium important? ›
A moratorium includes temporary relaxations from enforcing collection of interest on loans, taxes pursuant to assessment proceedings, and imposing penalties on delayed payments. The moratorium, in general, removes financial hardships temporarily.
What is a moratorium period in simple words? ›
Summary. A moratorium period is a period during which the borrower is not obligated to make payments. Interest on a loan during the moratorium period generally accrues. A moratorium period is commonly incorporated in home loans and educational loans.
Is a moratorium good or bad? ›
Is the moratorium period good or bad? A moratorium period can be a double-edged sword. It offers crucial relief during financial hardships by pausing loan payments and preventing default. However, it's important to note that interest may still accumulate, potentially increasing the total cost of your loan.
What is moratorium period for mortgage? ›
A moratorium period typically refers to a specific period during a loan's tenure when the borrower is not required to make regular loan repayments. The duration of the moratorium period can vary depending on the terms and conditions of the loan agreement and the policies of the lending institution.
What happens after the moratorium period? ›
The loan's principal amount and any interest accrued during the moratorium period will be put together after the accrual of interest. As a result, you will have to start making payments on your EMIs after your EMI holiday is ended.
What are the benefits and disadvantages of a moratorium? ›
Loan EMI Moratorium Pros and Cons - A Quick Look
| Pros | Cons |
|---|
| Immediate Financial Relief - Offers a pause in EMI payments, providing breathing room during financial hardships. | Interest Accumulation - Interest continues to accumulate on the principal amount, increasing the overall loan cost. |
2 more rowsMar 29, 2024
A moratorium on a particular activity or process is the stopping of it for a fixed period of time, usually as a result of an official agreement. The House voted to impose a one-year moratorium on nuclear testing. Synonyms: postponement, stay, freeze, halt More Synonyms of moratorium. Synonyms of.
What is the purpose of debt moratorium? ›
All the debts in your DRO are written off at the end. A moratorium is an agreed period of time when you do not have to make payments towards your debts while you get help. You must meet the criteria for a debt relief order throughout these 12 months.
On a Moratorium Payment Break you will not be required to repay anything towards capital or interest for an agreed period of up to 6 months. If you should choose a Payment Break with Interest Only, you are only required to pay the interest owing on your mortgage for an agreed period of up to 12 months.
What are examples of moratorium? ›
For example, a business that has exceeded its budget might place a moratorium on new hiring until the start of its next fiscal year. In legal proceedings, a moratorium can be imposed on an activity such as a debt collection process during bankruptcy proceedings.
How long does a moratorium take? ›
It lasts for 6 months and means creditors are not allowed to take any action to recover what you owe them during that time. During a moratorium people you owe money to will not be able to: arrest your bank account. freeze your wages.
What are the benefits of moratorium period? ›
Benefits of moratorium period?
- Relaxation on Monthly EMIs. Students get relaxation on monthly EMIs, as the moratorium period usually covers your course duration plus 6 months or can extend upto 1 year. ...
- No effect on the credit score. ...
- No charges applicable on non-payment.
One of the biggest drawbacks of a loan moratorium is that a loan repayment is not waived, instead it is only deferred. This means that as a borrower you still owe interest to your bank or your lender. Moratoriums can also result in additional interest charges that can lead to further pressure on your future payments.
What is moratorium risk? ›
If you are worried that you may be at risk of Sheriff Officers taking action against you, a Statutory Moratorium is a legal device that you can use to protect yourself. Statutory Moratoriums also protect you from Creditors making an application for you to be made bankrupt.
What is the 12 month moratorium period? ›
You start a 12 month moratorium period when you get a debt relief order (DRO). All the debts in your DRO are written off at the end. A moratorium is an agreed period of time when you do not have to make payments towards your debts while you get help.
What is the difference between a grace period and a moratorium period? ›
While they may sound similar, there are some key differences between a grace period and a moratorium period. Grace periods allow a buffer between when a billing cycle ends and the payment is due. This period does not earn interest. A moratorium is a pause on payments for a certain period of time.
What does moratorium status mean? ›
In moratorium (M), the adolescent is in a state of active exploration and has made no commitment, or at best an unclear one. Identity achievement (A) signifies that the adolescent has finished a period of active exploration and has made a related commitment.
