What it is:
Moratorium is a legally authorized period to delay payment of money due. Basically, postponement of the required periodic payment, such as rent or repayment towards a loan. It is temporary and enacted during emergencies or unusual circumstances.
What the tenure is:
The Reserve Bank of India, or RBI, permitted a 3-month moratorium on home loans up to May 31, 2020. That date was further extended to August 31, 2020, taking the total moratorium to six months.
What it is not:
It is not a waiver. There is no free lunch. You will have to pay interest on the loan.
How the loan tenure gets extended when a moratorium is taken:
State Bank of India provides this example on its website.
- Loan = Rs 30 lakh
- Balance Maturity = 15 years
- Loan moratorium: 3 months / 6 months
- Additional interest payable = Rs 2.34 lakh / Rs 4.54 lakh
- Additional EMIs = 8 months / 16 months
Interest will accrue on your loan during the moratorium period. The Equated Monthly Instalment, or EMI, will be recalculated at the end of the moratorium period so that the principal together with the accrued interest gets amortized over the balance term of the loan. As the EMI amount stays the same, the number of EMIs get increased. Meaning that the tenure of the home repayment home gets extended.
It is not mandatory:
Moratorium is an option for those who find themselves in a tough financial situation.
If you have an emergency fund to help you tide through, or are fortunate to have sufficient liquidity, stick to your original repayment schedule. Opt for it only if you are really hard on cash.
It will not affect your credit score:
Should you opt for the postponement of EMI payments during the moratorium period, your credit score will not be affected. During the pendency of the moratorium period non-receipt of EMIs shall not be classified and reported as default to the various credit bureaus.
What the court seeks to do:
The court is not considering a complete waiver of interest. It is only concerned that postponement of interest should not accrue further interest on it. Interest should not be charged upon interest during the tenure of the moratorium.
