The six-month moratorium on Equated Monthly Installment (EMI) came to an end on August 31.
The six-month moratorium on Equated Monthly Installment (EMI) came to an end on August 31. Borrowers who had the option to opt for this moratorium are now required to repay it.
The repayment can be done either in lump-sum amount or borrowers can ask lenders to add these to their outstanding loan and increase the EMI for the remaining months. Alternatively, borrowers can keep the EMI unchanged but the loan tenure can be extended.
The number of additional EMIs or tenure will nevertheless also depend on the tenure of the loan left and the rate of interest (ROI).
Now, borrowers also have the option of converting interest accrued during the moratorium period into a separate loan.
Those still struggling with liquidity issues can opt for a restructuring of loans.
In view of this, let’s understand all the repayment options in detail:
If the finances allow, the borrowers can make one-time repayment of the amount (that was availed during moratorium plus accrued interest) and then continue the loan as usual. In this case, there would be no increase in EMI or tenure.
Increase EMI for remaining months
In this case, the borrower will be required to pay higher EMIs for the remaining months. BankBazaar explains this as an example.
Suppose, a borrower has a home loan of Rs 50 lakh for 20 years and ROI is constant at 8.50 percent. He availed the moratorium from April to August. Let’s assume, these were the first five EMIs that were deferred (he being a beginner in EMIs).
Before availing moratorium, he was required to pay 240 EMIs, where the EMI amount was Rs 43,391 per month and the total interest was Rs 5,413,879.
After availing moratorium, the total interest will be Rs 6,482,470 and the additional interest will be Rs 1,068,491.
In case, he opts to increase EMIs and keep the tenure the same, the new EMI he will have to pay is Rs 45,316 per month.
Extend loan tenure
The borrower can also decide to keep the EMIs same and increase tenure. In the example explained above, the tenure will increase by 30 months to 270 months (which earlier was 240 months).
Restructuring of loans
Borrowers who have been repaying regularly till March 2020 can also be provided a restructuring of their loan through a framework to be decided by the bank. Borrowers should note that loans in default for more than 30 days as on March 1, 2020 will not qualify for this plan.
"Under the restructuring plan, banks can choose to reschedule loan repayments, convert any interest accrued or to be accrued into another credit facility, extend the loan tenor, or extend moratorium up to two years for the existing loans, depending on the current repayment capacity of the borrower," explains Naveen Kukreja, chief executive officer and co-founder, Paisabazaar.
According to Veena Sivaramakrishnan, Partner, Shardul Amarchand Mangaldas & Co, the borrowers can consider arriving at a resolution plan and implement it within the next 6 months. This may give an additional breather of a 2 year moratorium under certain circumstances.
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First Published: IST