A Guide On Moratorium Period And Its Implications

Moratorium Period

A Home loan is by far one of the most common methods to finance a new house. It offers a substantial capital to purchase or build your new property, along with a longer loan tenor to help you divide the repayment into affordable EMIs.

Despite such conveniences, it might not be feasible to start to repay the loan almost immediately. You might have specific financial responsibilities to adhere or some emergencies to cater to; even a delay in the construction of your new home can cause your budget to spiral out of control.

In such situations, a moratorium period can provide you some respite from regular monthly payments. It delays the start of your loan payment and gives valuable time to bring your finances back to normal.

What is a Moratorium Period?

Moratorium periods are the span of time when you do not have to pay any EMIs for your advance. It is common to house loans and education loans and help ease a borrower from their increasing financial liabilities. In case of a home loan, the borrower may have to pay the rent for their present accommodation during the construction process. While this is unavoidable, if he or she has to pay the EMIs as well, it can severely strain their finances.

For an education loan, this EMI free period provides some respite when a student looks for a job or settles outstation. They might have to pay various overhead expenses like rent, transport, and other bare necessities.

To relieve them from this issue, lender offer an ‘EMI holiday’ for a certain timespan to help a borrower maintain their budget. Usually, the repayment process starts as soon as the loan is disbursed to one’s account. However, if someone avails a moratorium period, they can delay the process for a finite number of EMIs or months as according to the terms of agreement between the lender and borrower.

Home Loan and EMI Free Period

The meaning of a moratorium period in a home loan is the same as mentioned earlier. Many financial institutions offer a fixed EMI-free period on home loans. The timespan differs between lenders, but a common practice is to provide a moratorium period of 1 month to 18 months for a property under construction and 1 to 2 months for a ready-to-move house.

Bajaj Finserv offers attractive terms on home loans, which gives you enough time to settle your finances with cumulative monthly obligations.

During this EMI free period, the lender will calculate the interest rate as usual. Interest calculation will begin as soon as the money gets disbursed to your account, but it will not levy on the entire loan amount at once. It will accumulate until the this period ends. Some financial institutions offer a concessional interest rate if you decide to pay that accumulated amount during the EMI-free period. Otherwise, the interest will add with the total loan amount and will be paid via the EMIs.

Implications of Moratorium Periods

An EMI-free period at the start of your home loan gives you adequate time to plan and execute your finances carefully. You can plan your future monthly expenses after you take the house loan EMIs into consideration, and match that with your monthly income to better optimise your fixed obligation to income ratio.

The moratorium period also gives you time to pay for other asset related expenses like registration and stamp duty, brokerage, etc. Moreover, it helps you save some money which you can later utilise to pay for expenses that will occur immediately after you shift to your new home.

The EMI-free period provides a much-needed interval before you start to pay your home loan EMIs. After you move into a new property, you will have to bear various overhead expenses. This period gives you some time in between where you can streamline and stabilise your finances.

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