Understanding Moratorium Period And Its Implications
As a majority of real estate transactions are financed by banks, there are a number of jargons which leave home buyers confused and unaware of its importance. Moratorium period is one such terminology which is being actively used in finance and loaning industry but is known to only those who have known its implication. Here is all you need to know about moratorium period-
What is moratorium period?
Moratorium Period is better defined as the 'EMI Holiday' during which the buyer need not pay any monthly installment to the bank. This is usually opted by the home buyers when the project gets delayed and the home buyer is not in the condition to double his monthly outflow with house rent and EMI. Though the repayment of loan has to begin as soon as the money is disbursed to the home allotee, buyers usually defer paying the installments until they get the possession to maintain their budget.
Home loan and moratorium period
While this term was more prevalent for education loan, these days even home loan comes with a fixed moratorium period. For instance, if the construction gets delayed then banks can allow you to go on an EMI holiday, based on the agreement finalised between bank, developer and the buyer. The grace period for an under construction property is 18 months or till one month after possession, whichever is earlier. For ready-to-move-in property, the period can be as short as one month. Few banks have started to offer concession period for up to three years to attract new buyers. Check with your bank and negotiate on your own terms if you are considering to opt for concession period. Though, if you start paying as soon as the loan amount is disbursed, you can also get a discount on lending rates.
Should you consider opting for moratorium period?
While moratorium period sounds fancy and convenient to opt for, one thing home buyers should understand is the fact that the buyer needs to pay the interest during this grace period which is charged differently- monthly, quarterly or simple interest. However, if the buyer decides to defer the entire amount, the interest charged during 'holiday' adds up to the total borrowed amount which gets adjusted in the monthly installments. In the usual scenario, the interest can go up to 10 per cent of the total sum of principal amount and the interest charged.
Moratorium Period and 'No-EMI' scheme are closely related. In this offer, developers pay interest on the buyer's behalf till the time of possession. This grace period is on the negotiated terms between the bank and builder where the total sum of the loan remains same but the interest levied during EMI-holiday is afforded by the builder.