A person makes financial investments based on his current income and expectation of a steady income flow in the future. Most of us depend on our monthly salary to repay loans. For instance, you may depend majorly on your monthly salary to repay a home loan and manage the daily expenses. But, what if you face a sudden job loss or an unforeseen event? Missing payments towards home loans can count as a default and impact your credit score.
So, what should you do to pay the loan EMIs on time until you are employed again? Here are a few tips to pay home loan EMIs after a job loss.
1. Restructure the Loan
It is best to negotiate the terms of the housing loan with the bank/NBFC than to miss payments. In dire situations, the fund-provider may be prepared to restructure the loan and increase the loan tenure so that the EMI burden is reduced. Interest rate can be negotiated in some cases, if you can add more number of collateral to the loan.
2. Home Loan Insurance
A home insurance is different than home loan insurance, and in case of a job loss, you may take benefit of the latter. A home loan insurance plan helps the insurer to settle the outstanding home loan amount with the bank/NBFC in case of an unforeseen situation. You can choose a term insurance to take care of all your liabilities and debts, or home loan specific insurance, which will take care of related outstanding EMIs alone.
Features of a Home Loan Insurance:
1. Most of the home loan protection plans ask for a single premium. This means, you have to make the premium payment at once. The amount can be high, but taking such a plan will protect you against missing EMIs during a financial crisis.
2. There is a life cover included. The plan will offer life coverage that is equal to the home loan outstanding amount and as soon as this amount is cleared, the cover too will come to an end.
3. You may receive riders and add-ons as well such as income loss due to terminal illness, disability, accidental death, and job loss up to 3 or 6 months of EMI payments.
4. Taking a property insurance scheme is a win-win situation, since premiums paid towards such a scheme are applicable for tax benefits under the Section 80C.
3. Consider Your Emergency Fund
Keeping 6 months’ salary aside as emergency fund should be your foremost financial goal. If you have an emergency fund, then you can utilize it to pay for the home loan EMIs. Once you are able to generate a regular income, do rebuild the emergency fund, as it acts as a hedge against financial crisis in times of emergencies.
Loss of a job or steady income can be financially disrupting but by keeping the above-mentioned tips in mind, you can overcome any financial difficulty that comes in the way of repaying your housing loan EMIs.