An increase in loan tenure when interest rates increase, or taking a home loan late in their career are some of the common reasons why people often have to enter retirement along with a home loan repayment.
Retirees normally depend on their retirement corpus to meet their daily living expenses and managing an equated monthly instalment (EMI) often creates financial challenges. Continuously missing home loan EMIs can lead to a home loan default, resulting in a recovery action by the bank in the form of penalties, a fall in credit score, and even an auction of the property.
The question is, can one do something to overcome the situation of a home loan repayment default? The answer is yes! Here are some of the options that retirees may explore to overcome a home loan repayment default.
Liquidate Your Investment Meant For Low-Priority Goals Or Use The Emergency Fund
You must have created a corpus for some of your low-priority goals. You can liquidate such corpus to arrange funds for the repayment of the outstanding loan EMIs and to avoid the bank’s action. You may also use your emergency fund to meet the payment requirement. However, you must ensure that you can repay the future loan EMIs on time, because you may not be able to liquidate your investments again for the same purpose.
Also Read: What Documents Do Elderly People Need To Get Loans?
Sell A Part Of Your Existing Assets To Repay The Loan
If you have an asset which you are not using frequently, such as gold jewellery, a car, etc., you may sell it towards making repayment for the home loan as well as avoid any default. Selling an asset is a temporary arrangement to arrange money for the loan repayment and it should be used only after exploring all other alternatives.
Talk To Your Lender For A Loan Restructuring Or To Get A Moratorium
Talking to your lenders in matters related to loan repayment often works in favour of the borrower. You may cite your long banking relationship and assure your lender to repay future EMI payments on time. If the lender is satisfied, you may get relaxations, such as a moratorium in loan repayment i.e., a temporary break from loan EMI repayments by a few months, or the lender may allow restructuring of the loan i.e., increase the loan tenure to reduce the EMI size.
Explore Other Options
Have you explored all the options and couldn’t find a way to avoid the home loan repayment default? You may get in touch with a financial advisor for a more specific solution. As a last resort, you may sell your home and use the proceeds to repay the entire outstanding loan and use the funds left in hand to buy a smaller home or shift to a rented apartment.
It can be a painful situation for seniors to face the situation of the home loan default. Even if you want to step into your retirement with an outstanding home loan, make sure you have sufficient funds to repay the EMIs on time and to avoid loan default in all situations.
The author is an Independent Financial Journalist