When you are taking out a home loan, a moratorium period is a facility that you can access. Here is everything you need to know about a moratorium period in home loans.

What is the meaning of moratorium period?

‘Moratorium’ means “a state of temporary inactivity”. A moratorium period is a duration usually at the beginning of your EMI repayment schedule where you don’t have to pay your monthly instalments. In essence, it is an EMI holiday period. Lending institutions usually offer this to customers availing student or home loans. For example, students are offered a one-year-long moratorium, at the beginning of their EMI repayment schedule as there may be a time gap between the completions of their course and finding employment.

Additional Read: Monetary Relief Measures in the Time of COVID-19

Moratorium period and home loans

Often, there are delays in the delivery of housing projects. In such a scenario, house buyers are forced to cope with the double burden of meeting the expenses of their present accommodation (rent) as well as with the responsibility of paying their EMIs. A moratorium is offered to home buyers to relieve them of this double burden. Additionally, they can use the home loan moratorium to plan their finances and prepare for the upcoming additional monthly expense (EMI).

Moratorium period vs grace period

It is easy to confuse this with a grace period. A grace period is usually an extended time given to the borrower to clear any dues. Moratorium, unlike a grace period, will accrue interest to your account and is usually offered to prevent any defaults and the possibility of the accumulation of dues.

How does a moratorium period affect your EMI?

You can opt to pay the moratoriuminterest as it is charged, that is, during the period itself. In such a scenario, your EMI won’t be affected as you have already paid the interest. Another payment method which won’t have any impact on your EMI is by opting to pay the moratorium period- interest after the original EMI schedule. This way, your EMI would remain the same and only your tenure would increase.

Your EMI will be impacted if you don’t opt for the above-mentioned methods. The interest accrued, then, would be adjusted by increasing your EMI. In this case, you won’t have to pay anything during the holiday period.

It is recommended that you use the EMI moratorium calculator available on our website to assess the impact of the moratorium period on the EMI or the tenure.

You must, however, check with your lending institution and be thorough with the terms and conditions because some institutions might increase the interest rate after the holiday period to compensate for it. This usually happens with home loan sanctioned on floating interest rates.

Additional Read: Loan moratorium period extended by 2 years: Govt

Tata Capital has flexible terms and conditions when it comes to home loan moratorium period, so if you think you would plan your finances better then Tata Capital loans are the way to go!

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