Home loans are big ticket loans and the problem with them is that they have a very long payment duration. These loans can extend up to as many as 30 years. Chances that in the intermittent period, there could be a medical emergency, a death or simply a job loss. This could mean that the probability of a default on the loan remains high.
Of Course, you can ask the bank, the finance company or the housing finance company to work out a scheme of arrangement, but, if sometimes that does not happen, then you could be in trouble.
Here is what happens when you can't pay your home loan:
1) Skipping of EMIs
The first few Equated Monthly Installments (EMIs) are not a problem, if there is a default on them. However, the problem will arise when there is a default of three consecutive EMIs. Most banks will then send you a reminder for payment.
Thereafter there would be notice from the financial institutions. You have to reply and ensure that you regularize the payments. In fact, you should try and settle the outstanding within 60 days from the receipt of the notice.
2) Property can be confiscated
If you are unable to still honour your obligation, then the bank has the right to confiscate your property. Interestingly, if the EMI is unpaid you may not have recourse to filing a case in the Courts.
The Securitization and Reconstruction of Financial Assets And Enforcement of Securities Interest Act grants banks and financial institutions to recover mortgaged assets without intervention of the courts. However, many lenders try to reach an amicable settlement with the bank or the housing finance company in question.
3) Property can be auctioned
If you are unable to reach an agreement with the lender your property maybe mortgaged. This can be done as per the provisions of the Securitization and Reconstruction of Financial Assets And Enforcement of Securities Interest Act. As this stage also the lenders would be prepared to negotiate. However, you can actively ensure that if a settlement is not reached the property is mortgaged at a high rate.
4) Refunding of dues
If the auctioned property is auctioned at a higher amount then the amount payable to the bank, the bank or financial institution will refund you the excess amount. As an example, if the property value received through auction is Rs 40 lakhs and you owe the bank Rs 30 lakhs, then the bank has to pay you Rs 10 lakhs back.
The most important thing in all of this to ensure that you are transparent with your banker. It's important to work together with your banker to avoid any hiccups.
In case there is an emergency like a default you should first inform your banker. He would then make an effort to closely work together with you so as to resolve the matter amicably.