Moratorium period is the period provided by the bank during the loan tenor during which you are not required to make any repayment to the bank. 

It is also known as ‘EMI Holiday period’ or ‘Waiting period’ as you are free of paying any EMI during this period. Banks usually provide this option with education loans and home loans. 

It is favourable for students and salaried individuals to arrange money for making loan repayments.

What is a Home Loan Moratorium Period?

In case of a home loan, the bank provides a waiting period for the repayment of your loan. For instance, if the construction of your house gets delayed and you also have to continue with the house rent, then you can take advantage of the Home Loan moratorium period. 

It reduces your burden of paying house rent and home loan EMIs. This implies that you do not have to pay the EMI for a certain period of time.

Moratorium Period and Home Loan

The concept of Moratorium Period was initially started by banks with education loans. While pursuing a course, it is difficult for students to collect and save money for an education loan. 

This brought the concept of the moratorium period into the picture. With this option, the students are given a grace period where they can find a job, save money and need not make any repayment. 

The similar concept was introduced in Home Loans later. If there is any delay by the builder of your house project, you can avail a home loan with moratorium period and then repay off your loan later.

Let us take an example to understand this concept better. For instance, let us say that you have taken a loan of Rs.60 lakhs for 20 years at a rate of interest of 10%. You can calculate your Home Loan EMI with the help of an EMI Calculator. As per the EMI calculator, the EMI per month comes to Rs.57,901. 

However, if you opt for the Home Loan Moratorium Period, things become different. If your bank provides you a 3-month EMI holiday, this means that you have to pay zero EMI during those three months. In such a case, your loan tenor reduces to 237 months from 240 months. 

Your EMI will become Rs.58,133. Though your monthly EMI increases, you get the 3-month period to accumulate and manage your finances to repay off your loan. Another benefit of Home Loan Moratorium Period is that the builder takes the charge of the interest payment in collaboration with the bank. For this to happen, the bank and the builder should be on negotiated terms on the EMI holiday concept.

Loan Servicing in Moratorium Period

To understand the calculation of moratorium period in a home loan, you can request your loan provider to provide you with a home loan moratorium period calculator. It is also available online for easy accessibility. 

Since the terms and conditions of home loan in moratorium period differ from one bank to another, it is important that you understand them everything beforehand. While planning to take a home loan, it is not only important to compare the home loan policies of different loan providers but also the moratorium period. 

You can ask your bank to give you a detailed description of the home loan procedure with the moratorium period. You should know about the principal repayment, interest payments, moratorium period and how to utilize this period in paying the EMI. 

The Bottom Line

It is of utmost importance to understand the tenor and utilization of home loan moratorium period while applying for a home loan to reap its benefits and make savings.