[RBI] The Home Loan EMI of the Middle Class

The bottom of the pyramid, the needy and poor got benefits from the Government. The middle class guy who funds all these benefits was left wondering. “Mera number kab Aayega!“. (When is my turn?)

Will there be a cash transfer to my account? or free groceries?

Will I have to NOT pay electricity bills for the next 3 months?

Will I get high speed internet free?

etc. etc.

Sochne pe tax to hai nahi!

And then came RBI’s ‘bazooka’ announcements on March 27 to aid the economy in these turbulent times. The middle class sat upright with eyes wide open to see if there was deliverance.

Turns out the biggest ‘relief‘ (if you may call it that) the middle class guy, that is you, received from RBI was with respect to the home loan EMIs.

The RBI has told banks that in the next 3 months, if anyone, who has a home loan, car loan or a defined term loan, is not able to pay their EMIs, then the bank should not mark them as defaulter.

Allow 3 months till June 2020 for the payment of these loans.

However, at the end of the 3 month period, all the unpaid interest / EMIs during the past 3 months has to be paid immediately to the loan provider (your bank, for example).

The message spread faster than virus. I started receiving WhatsApp messages about how RBI has waived-off EMIs for 3 months. Yay!

This is grossly incorrect.

Here’s what has actually happened.

The case of the deferred home loan EMI

If you have a home loan EMI and for any reason, you are not able to pay this EMI, then you have extra time till June 2020 to pay these ‘unpaid EMIs’.

As a relief measure, you will not be marked as a defaulter. The bank will not come to take away your house.

Your non-payment in these 3 months is also not going to be reported to CIBIL and hence your personal credit score / rating will not suffer.

The bank may not apply any late payment fees or penalties too.

So, this is all great. Yet!

Remember, this is not FREE money to you. You will still be charged interest for the period you have not paid.

The interest will be calculated for these 3 months as well and added into your account. You have to pay it all up at the end of June 2020.

However, if you don’t pay up the interest even after June 2020 then penalties, late fees and reporting of your default to CIBIL – all will be done. You are likely to be in bigger trouble.

Update as on March 30, 2020: Apparently, the 3 month home loan EMI moratorium is automatic, that is, banks will not take the EMI from your account, unless you specifically pay the money into your home loan account. I will get to know that soon. Also, the term of the home loan will be extended appropriately. No need to pay lumpsum interest at the end of 3 months.

Note: If you pay up the pending EMIs + the extra interest after June 2020, then life continues as normal with your regular EMI. However, if you pay only the interest, then your loan repayment period will go up too. Remember, you have only paid the interest and not the principal.

Can I miss my credit card payments too?

Yes, of course. Your credit card company will love to charge you that extra interest at 36% or more.

Don’t post pone credit card payments just because there will be no late fees. The latest IPO of a card company has succeeded just because its profits depend on people who like to pay late fees and interest on their dues. Worse, some revolve credit. (You cry, I float!)

What should you do?

Come on! Keep paying your home loan EMI or your car EMI, regularly, if you can. If you have credit card bills, settle them promptu, before due date.

If for any reason, you still want to defer your EMIs, you should check with you bank or loan company about the eligibility and process. Keep in mind, nothing is free.

Final words: Don’t give a chance to anyone to mess up your financial life.