Causes of Home loans default
Home loans are a necessary part of the home purchase decision. So thus many of the individuals need to avail loans for the home purchase as the prices of the property are sky-rocketing and thus it is very difficult for the home buyers to buy the house without the home loans being taken from the bank or an NBFC. The home loans installments if not paid on time the loans may turn into bad debt and the bank may be forced to seal the assets of the borrower. The home loans in case of default can lead to the seal of assets which the bank can sell to other prospective buyers and thus recover the pending amount along with the interest. The borrower can claim part of the paid amount from the bank in case of the bank sells the property to the buyer. The loans can be also transferred to another borrower in case of the higher interest rates being charged by the existing lenders. The income tax benefits can also be taken by the borrowers until they pay the loans installments. The banks charge interest rates of 9-14% per annum.
The home loans can be taken from any of the lenders and also at competitive interest rates. The loans can be defaulted due to multiple reasons. The bad debts of the bank are increasing very rapidly due to which the banks are very cautious about extending the loans to the borrowers. The recovery of the bad debt in home loans is easily recoverable as the bank can seal the property and recover the pending dues through the sale of the property. Thus loans taken should be given to financially stable individuals about whom the bank has a confidence about the repayment. The loans have seen many defaults even due to the Coronavirus epidemic. Many people sometimes may not be willful defaulters but still may have to lose their property due to financial problems. Banks may sometimes provide a higher moratorium to the borrowers in case of genuine financial problems being faced by the borrower. The borrower should aim at availing the loans at minimal interest rates to avoid over-paying for the loans to the banks. Lower interest rates can substantially help reduce the liability of the borrower which can help the borrower reduce the burden of the interest to the bank and also help reduce the tenure of the loans.
Following are the causes of the default of the loans
- The sudden death of the borrower:
If in case there is a sudden death which is being caused by the borrower due to the accident or illness that case if the borrower’s spouse is not working then the loans may get defaulted.
- Sudden job loss being faced by the borrower:
Sometimes due to periodic restructuring in the companies or due to poor financial condition of the organization can lead to layoffs in the organization which can lead to default of the home loans as without the salary with no source of income the borrower may not be able to repay the loans.
- Default due to illness or accident being caused by the borrower:
Some severe illnesses can cause a huge loss to the borrower for the payment of the medical bills. Also, long-term leave due to medical reasons can lead to the loss of work which can lead to no source of income for the payment of the loans installment. Also, an accident can cause permanent retardation which can lead to loss of work due to which no income may occur to the borrower.
- In joint of joint loans being taken default occurring due to spoilt relations:
In case if the joint loans are being taken by the borrowers if the couple decides to get mutually separated or else file for divorce then in that case the loans can get defaulted.
- If the borrower is sent to judicial custody or being sent to imprisonment:
If the borrower after the approval of loans during the tenure commits any of the crimes and thus is being sent to judicial custody or being sentenced to imprisonment can lead to no income while being under trial thus leading to the default of the loans.
The borrower should be aware of the above circumstances should avoid these situations being mentioned above which can lead to default of the loans. During the repayment of the loans, the borrower should take proper care of their health through certain situations that are un-avoidable the borrower should take utmost care that the home loans should not get default as it can affect the entire family along with the defaulting borrower as shelter is one of the most basic liabilities and need of the borrower.