Top 3 Ways to Prevent Your Home Loan Default

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09 JUNE, 2021

Once you avail a home loan, it should be your prime responsibility to repay the loan amount within the specified duration. However, sometimes due to unforeseen situations it might be difficult to pay off your home loan EMIs. If you are unable to pay your EMI for a month, it may not be a cause of concern, if your lender is informed beforehand. But, do keep in mind that if you fail to make EMI payments for 3 consecutive months, the lender will consider it as a home loan default.

In case you default on your home loan, the lender reserves all the rights to seize your property to recover its loss. Therefore, you should avoid defaulting on your home loan under any circumstances.. Here are some important tips that can help you prevent a home loan default.

Tips to Prevent Home Loan Default

Proper Financial Planning

To avoid home loan default, you should wisely plan and analyse a few things in advance. When availing a home loan, you must always settle for an EMI that suits your monthly budget. You can use a home loan EMI calculator to get an estimate of your monthly instalments. Make sure that your monthly outgo in the form of home loan EMI does not exceed 40% of your monthly income. This will help you make EMI payments conveniently, thereby preventing a home loan default.

While servicing your home loan, you can consider making prepayment of your home loan to reduce your financial burden. Using additional income from bonuses, increments, etc., for home loan prepayment can help bring down your monthly EMI, thereby reducing the chances of default. Do not forget to make a note of the home loan foreclosure charges before opting to foreclose the loan.

Utilize Your Savings

Defaulting on home loan can not only cost you your property but also adversely affect your credit score. This can make it difficult for you to avail any type of credit in the future. Therefore, try not to miss out on home loan EMI payments, even if it means digging into your savings. You can also consider utilizing your investments to pay your EMIs and avoid default. Besides, not having the burden of paying EMIs can be a give you a sense of relief.

Opt for Home Loan Balance Transfer Facility

You can consider opting for the home loan balance transfer facility to make your home loan EMIs affordable and to avoid default. By refinancing your loan with a new lender, you can reduce your home loan interest rate. You can also choose a longer tenure to further reduce your repayment burden. A home loan balance transfer can effectively help you avoid home loan default.

Make sure that you do not overburden yourself with multiple loans while you are already servicing a home loan. Try to build an emergency fund by saving a small portion of your monthly income regularly. This can prevent home loan default in situations like job loss, heavy business losses, etc. Plan your finances and analyse a few things beforehand to avoid defaulting on the loan and any financial distress associated with it.

Disclaimer: This Article is for information purpose only. The views expressed in this Article do not necessarily constitute the views of Kotak Mahindra Bank Ltd. (“Bank”) or its employees. Bank make no warranty of any kind with respect to the completeness or accuracy of the material and articles contained in this Newsletter. The information contained in this Article is sourced from empaneled external experts for the benefit of the customers and it does not constitute legal advice from Kotak. Kotak, its directors, employees and the contributors shall not be responsible or liable for any damage or loss resulting from or arising due to reliance on or use of any information contained herein.

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