Avoiding property auction on home loan default

If you have defaulted on payment of a couple of your home loan instalments, you need not worry. The bank or the financial institution will not trouble you for a couple of defaults. However, if you continue to default for six months, the lender’s debt collectors will come knocking at your doorsteps. If you are unable to pay up even after six months, the lender will give you a two-month grace period to pay up your overdue loan instalments. But if you are still unable to pay the instalments during the grace period, the bank will start recovery proceedings against you, which could include auctioning your house to recover its dues.

On default of home loan instalments, here’s what you need to do avoid your property getting auctioned:

Request for restructuring of loan: You can apply to the bank requesting it to restructure the balance loan amount. The bank can offer you easy and flexible payment terms as part of restructuring so that it helps you to avoid defaulting in payment of loan instalments.

One-time settlement: You can also approach the bank with a proposal for a one-time settlement of the outstanding loan amount. In this case, the bank can waive up to 100% of the interest amount and 50% to 90% of the balance principal amount and ask you to pay up the entire remaining principal amount in lump sum. The quantum of waiver of principal amount will depend on the principal amount repaid till the time of default. So, if the bank waives off 100% interest amount and the balance principal amount of your loan is Rs 3 lakh out of the total loan amount of Rs 10 lakh, the bank may as well ask you to pay a lump sum amount of Rs 1 lakh towards full and final settlement of the entire outstanding principal amount of Rs 3 lakh. Of course, you have to keep in mind that since you have not paid the entire loan amount due to the one-time settlement, such settlement will adversely affect your credit score.