The consequences of failing to repay your mortgage on time

Posted by Alan Finkel on September 30th, 2022

80% of the purchase price can be borrowed from banks and NBFCs. Without obtaining a mortgage, it is impossible to purchase a home because of the increasing housing cost. Home interest rates on loans and processing fees have decreased dramatically in recent years. This, combined with the additional benefit of tax breaks, has made mortgage loans widely available to the general public. For thorough information, you can also access a Foreclosure Bankruptcy Attorney in Beverly, MA.

Though home loans are appealing and make it easier to purchase a home, they can also become a burden if you are unable to repay the loan, as this is a long-term obligation and anything can happen, such as if you will lose your job or have an unexpected medical emergency, which prevents you from paying your home loan EMI.

Now we must consider what might happen if we are unable to repay the loan EMI.

If you fail to pay the EMI for three months in a row, the bank may seek to expropriate your property. After the second month of nonpayment, the bank will send the borrower a letter reminding them to pay the loan. Only after the third default does the bank have the right to auction the home under "The Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act 2002."

Afterward, the bank will issue a legal notice requesting that the borrower pay the loan amount. If the mortgagor does not repay even after this, they will be sent another letter stating how much they have regarded the property and when they intend to auction the home, which will be set after one month of the notice.

As can be seen, the bank allows the lender up to 6 months before selling off the property. The borrower can use this time to meet with bank officials to resolve the issue.

So, don't get panic; instead, figure out what needs to be done next.

Steps that the borrower must take

First and foremost, you have not paid your bills, and now you are receiving letters from the bank threatening legal action. So organize your papers and documents. This should include information such as your loan amount, tenure, interest rate, monthly EMI, a record of previous EMIs, and so on.

Contact your bank once you have this. They'll be ready to listen to you and help you in any way they can. For them as well, it's a drawn-out and costly process.

Secondly, solicit a grace period. Request a grace period from the bank, asserting that you have been offering to pay your EMIs on time but are unable to do so due to a valid reason such as job loss. All of the records and statements you prepared will come in handy here. Given that you are a genuine borrower, the bank may take into account your situation and grant you a grace period with a penalty.

Thirdly, evaluate your alternatives. Discuss repayment options with the bank. You might consider refinancing your loan. In this case, the bank can extend the tenure to reduce your EMIs. This is for when the interest rate has risen and you find it difficult to pay back the loan. Another possibility is to try to sell funds to repay your debts. Selling stocks, bonds, and other investments in order to pay off debt.