How to Bust Stress Caused by COVID19 When You Have a Home Loan to Repay?

Updated on: 14 Dec 2021 // 27 min read // Home Loans
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All major economies in the world, including India, have been hit hard by the COVID-19 pandemic. As a result, the central government, as well as the various state governments in India, have implemented full-lockdown or curfew in states and union territories to restrict the spread of the coronavirus infection. While this decision has been helpful to some extent in India, it has resulted in shutting down numerous business activities.

We are now staring at economic uncertainty for many months to come. The problem is even more severe for individuals with outstanding Home Loan liability.While the financial institutions have now started offering a three-month moratorium on EMI payments, but the severity of the problem is beyond these months.

How to apply SBI moratoriumSBI Home Loan at Lowest Rate

Impact of Coronavirus pandemic on Home Loan Repayments

State Bank of India has already deferred the payment of EMIs falling due after 1st March 2020 till 31st May 2020 for all SBI Home Loan customers. Similar notifications have been issued by other leading Home Loan lenders as well, wherein the facility will be available automatically. While this announcement is a welcome move, but it does offer only temporary relief. After the period of three-month lapses, your EMI payments must be made as per the schedule wherein the accrued interest will be added to the amount outstanding, and your EMIs will be rescheduled accordingly.

For instance, let’s assume that your SBI Home Loan outstanding amount is Rs. 10 Lakhs, with 5 more years to serve, and the applicable SBI Home Loan Interest Rate is 8.5% p.a. When the three-month mortarium would come into effect, irrespective of the interest rate structure opted for, your interest liability would be calculated using the simple interest method as the outstanding amount is not reducing. Thus, the accumulated interest liability of Rs 20,000 for three months would be added to your outstanding amount, and the EMIs will be rescheduled.

HDFC Home Loan Interest Rates

How to mitigate the adverse effect of Coronavirus on Home Loan Repayments?

Till date, Coronavirus has affected more than 15,00,000 individuals globally and almost 5,700 individuals in India. With 166 deaths already recorded and the increasing fatality rate, it would be a folly to assume that this ailment can not affect you or your family members. In case of untimely death, financial commitments such as repayment of Home Loan can be put in a quandary. Moreover, the financial future of your family would also be marred with uncertainty. You must, therefore, undertake all essential steps to reduce the financial uncertainty that can affect your Home Loan repayments due to coronavirus infection. One of the most beneficial and useful steps that can help you here is Home Loan Insurance.

If you are an existing Home Loan borrower or are contemplating availing a Mortgage soon, you must acquaint yourself with all essential aspects of insuring your residential property. Here is your complete guide to Home Loan Insurance.

What is Home Loan Insurance?

Home Loan insurance is a contract between the insurance company and the Home Loan borrower, wherein the insurer promises to reimburse the lender with the outstanding loan amount in case of the death of the borrower. After the payment has been made to the lender, the Home Loan account is closed, and the family members or legal heirs of the borrowers get the ownership of the property.

Here are the key aspects of Home Loan Insurance: –

  • Home loan insurance is term insurance, i.e., the insurance company will pay the policy amount only in case of the death of the beneficiary. No amount is payable on maturity of the policy.
  • There is no compulsion to get a policy from the insurance companies prescribed by your lender. You can get your Home Loan insurance from any insurer approved by the IRDAI.
  • The Premium for Home Loan insurance generally has to be paid annually. If you purchase your policy through your Home Loan Lender, then the amount would be debited directly from the Home Loan account.
  • If the lender prefers a one-time payment of the Premium, the amount will be added to the overall loan amount, and you will then repay it in EMIs.
  • The maximum amount insured is the outstanding principal amount of the Home Loan. In fact, the policy amount reduces every month with the repayment.
  • The insurance company would make the payment to the lender only in the event of the death of the borrower and not to the family members of the insured.
  • After the payment has been made by the insurance company to the lender, the insurance policy ceases to exist.
Opt  SBI COVID 19  Moratorium SBI Home Loan EMI Moratorium 

Is Home Loan insurance necessary?

As of now, opting for a Home Loan insurance is voluntary, i.e., up to the discretion of the borrower. Though, in the last few years, it has been observed that most lenders insist on the borrower opting for a Home Loan insurance policy. In fact, you should also opt for a home loan insurance even if your lender is not insisting on it. Consider it as a necessity as it offers you several benefits like:

  • Protection of the financial interests of the family members in case of untimely death. The concerns are even more valid in uncertainties caused due to pandemic presently.
  • The ownership of the property is transferred to your legal heir, making them the absolute owner of the property.
  • The premium amount is nothing compared to the benefits available to your family members.

Factors affecting home loan Insurance Premium

Following are the factors that affect your home loan insurance premium:

  • Age of the borrowers (this includes co-applicants also)
  • The loan amount and repayment tenor
  • Medical history of all the borrowers (including co-applicants)
  • Type of premium payment chosen (annual or one-time)
  • Type of insurance policy

The benefits offered by Home Loan insurance are too good to be ignored. In the present times of economic and health uncertainties, having a Home Loan insurance is a necessity for you. So, subscribe to a policy today, if you haven’t till now.

Also Read: Should You Opt for a Home Loan Insurance?

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