Economic conditions are uncertain. We can never be sure of what knocks through our door, leading us to significant troubles in financial aspects.

A home loan is a suitable choice, mainly when our finances are segregated and monthly instalments are sorted. However, as mentioned, uncertainties are unpredictable. COVID-19 has shown us a glimpse of how everything can shatter even with proper planning. The Reserve Bank of India (RBI) had implemented a moratorium on the EMIs, which primarily includes home loans. This was implemented back in March 2020 and saw a closure within six months. This was a massive step in assisting people affected by the pandemic.

Home loan restructuring stays a subject of concern. Is it a good enough strategy? Let’s go through the details to understand its needs and importance.

Restructuring Home Loan - Explained!

Individuals or borrowers who undergo an inevitable financial crunch can opt for home loan structuring. Through this, they get a chance to negotiate the terms with the lenders and shift the timeline or terms to save themselves from falling into a situation that will eventually lead them towards trouble.

The main aim of home loan restructuring is to ensure there is no failure in making timely payments. All the EMI instalments must be duly paid. Additionally, the borrower gets a chance to gain stability and arrange the amount to pay flexibly in the future. You can implement the loan structuring process by keeping the rate of interest intact, too.

Is Home Loan Restructuring a Smart Idea?

No wonder home loan restructuring is one of the most efficient and sought-after processes for a borrower. Although there are benefits and flexibility, there are also reasons why you shouldn’t opt for the restructuring of a home loan.

1. When You Have Just Enough Account Balance:

Opting for a home loan restructuring even when you have sufficient funds is not advisable.

Loan restructuring is not advisable if your income source is enough to take you through the loan. Usually, the lender extends the tenure of the loan repayment in this process so that the EMI amount decreases; but this leads you to pay more than you were supposed to before.

Additionally, your lender may forward the loan restructuring to the credit bureau, which will add more layers of scrutiny to your accounts.

2. When Your Financial Goals Are at Risk:

Thinking of the benefits of loan restructuring could initially blur your vision when your future financial goals are at risk. For instance, if you extend your loan repayment tenure, you may have to make compromises with plans like your child’s education funds or your retirement funds. In such cases, it is not worth opting for loan restructuring.

Home Loan Restructuring - Advantages & Disadvantages

Restructuring of home loans can be tricky. Therefore, when an applicant applies for it, they should have a clear understanding of the benefits followed by the disadvantages.

Advantages:

• The lender gets 90 days to accept the home loan restructuring and implement the same. Else, the account is moved to “non-performing asset”.
• The loan tenure can be increased to a maximum ceiling of 2 years. This is entirely on the capacity of the borrower on how swiftly they can pay back the loan.
• The loan moratorium period increases to up to 2 years.
• Restructuring removes the borrower's financial burden and helps them plan their finances efficiently in the future.

Disadvantages:

• Restructuring of home loans is dependent on the lender’s policy. If the lender accepts to restructure your loan, the borrower must fulfil some eligibility criteria.
• There is a direct impact on your CIBIL score if you opt for restructuring.
• Restructured loans have a high rate of interest.
• The monthly EMIs will be inversely proportional to the loan tenure. If the former decreases, the latter automatically increases.

Who Is Eligible For Home Loan Restructuring?

The eligibility criteria for home loan restructuring are:

• The COVID-19 pandemic should have impacted the applicant’s income flux.
• Starting March 1, 2020, the applicant must not have been overdue for more than 30 days for paying their EMIs.

Conclusion

Home loan restructuring guidelines are strict; thus, it isn’t for everyone. You should go for loan restructuring when you are out of options. Avoiding loan restructuring is an ideal solution for individuals. Cut down some of your expenses to ensure the EMIs are paid promptly. Due to restructuring, the interest rates will rise, causing an imbalance in your finances.

You can check out the loan restructuring EMI through the loan structuring calculator. SMFG Grihashakti helps you understand the eligibility for home loan restructuring. Also, one can gather the factors to know the causes loan restructuring will incur on their finances in the future.

Disclaimer: "This blog is for your information only and may not be reflective of SMFG Grihashakti current policies. To know more, please contact us."