What happens if you miss one Home Loan EMI?

The process of neglecting to pay your home loan can be anxiety provoking (particularly since you place your home on the line). Fortunately, not paying just one of your obligatory monthly payments (referred to as “Equated Monthly Installments,” or EMI) won’t result in an instant foreclosure. However, it can result in numerous financial and credit problems.

Here is a brief overview of the three things that take place upon missing an EMI payment.

1. An Immediate Late Payment charge

Upon missing a payment, lenders (like SBI or HDFC Bank) will add the following charges to your account:

• A late payment charge, as well as a penal interest rate on the amount due, will apply.
• It’s also possible that GST would be applied to the above late payment charge.
• The late payment charge is typically a percentage of the EMI that has yet to be paid, and continues until your payment has been duly cleared.

2. An Impact to Your Credit Score

Your lender will report your payment history to any/all credit bureaus (CIBIL).

• If you do not pay an EMI past the grace period (usually 30 days), your credit score will fall.
• The account will also be marked “DPD ” (Days Past Due).
• As a result, financing future loans will become increasingly difficult.
• Interest rates on any amounts financed in the future will rise dramatically.
• If you pay your monthly obligation in full each month, you run the risk of losing a significant amount of credit score if you miss a single payment.

3. Reminder Calls/Recovery Initiatives

After missing a monthly obligation, it is very likely that the lender will take the following actions to contact you;

• You will receive an SMS, email, and/or phone call regarding your missed EMI payment.
• You will receive an email, SMS, and/or phone call from the lender as part of their collection process.

If you are diligent in clearing your overdue payment promptly, the above three actions will likely cease upon paying your EMI payment in full.

Also read: How Will a Personal Loan Help Overcome a Financial Crunch?

4. What If You Pay Within 30 Days?

When you pay off the EMI before it reaches thirty days, you will still incur late payment fees, although the damage may be minimal to your credit score as a result of non-installment reporting; your account may go back to regular terms. Acting promptly upon missing an EMI payment helps minimize any potential negative impacts.

5. What If EMI Remains Unpaid for 90 Days?

Late Payment Issues related to missed EMI payments beyond thirty days include:

• Legal notices will be sent to you informing you of future recovery action;
• The bank may initiate legal proceedings against you to recover the total amount owed to them;
• There may be a chance of your property being attached in some situations;
• In extreme situations, a bank may auction off your assets to satisfy a loan amount owed;

6. How Much Does One Missed EMI Affect You?

A missed EMI does not usually mean that your loan will go into default (become an NPA or non-performing asset), but continued defaults may mean that your loan will; other actions could include litigation and involuntary liquidation.

The impact of a missed EMI payment upon a borrower can be categorized by payment timing as follows:

• One missed EMI paid within a few days will incur late fees;
• One missed EMI paid after 30 days from the due date will have an adverse impact on your credit report;
• Three missed EMIs may result in substantial recovery action taken against you by the bank; and
• Ninety days of non-payment of EMIs may mean that your loan will be classified as non-performing.

7. What is the process to follow when you have missed an EMI?

If you miss an EMI payment, follow these steps immediately:

• Pay; pay the late fees and clear all the amounts you owe under your loan as quickly as possible;
• Notify the lender of your situation as soon as possible if you are going through a short-term financial difficulty, and

Ask for a modification of your payment terms in any of the following ways:

• Restructure the EMIs;
• Modify the terms of the loan; or
• Request a brief moratorium on the EMIs during your period of financial hardship.

If you communicate early regarding any missed payments, it is likely that the lender will be willing to consider a reasonable resolution to your issues.

Read more: 7 Sides To Think Through While Proper Financial Planning

8. Can One Missed EMI Lead to Home Seizure?

No. One missed EMI alone does not result in property seizure.

A notice of foreclosure or auction will be issued after all of the following conditions have been met:

• The borrower has missed multiple EMIs (equated monthly installments).
• The borrower’s account is 90 or more days late, but the borrower has received multiple warnings before an actual foreclosure action is taken.

9. How to Avoid Missing EMIs in Future?

To prevent missing EMIs in the future, it is recommended you do the following:

1. Set up an auto-debit for your mortgage from your salary account.
2. Create a 1-3 month EMI emergency buffer.
3. Align the due date of your mortgage with the pay day you receive from your employer.
4. Avoid borrowing more than you can afford.
5. Financial discipline and responsibility will save both your home and your credit history.

To conclude, if you miss one home loan EMI, it is not the end of the world; however, not taking action immediately could result in additional financial hardships. Your best option is to act quickly and communicate with your lender.

Eva Banerjee

I am a versatile content writer from the MP region, covering politics, business, crime, current affairs, entertainment, video games, and sports with clear insights, engaging analysis, and timely, reader-focused updates.