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Understanding Interest Burden When Availing 6-Months Loan Moratorium
In view of the extended lockdown till May 31 to curb the spread of coronavirus infection, RBI has further provided leeway in repaying loans by extending the earlier announced 3-month moratorium on all term loans including credit cards up till August 31, 2020.
In March, RBI's Shaktikanta Das amid the outbreak of the coronavirus infection announced 3-month EMI moratorium relief on all term loans plus credit card that became due for payment on March 1, 2020. Moratorium also referred as EMI holiday is a period during which borrowers do not have to service their loan installments.
Now as this moratorium relief comes at a cost i.e. additional interest burden on you, here is detailed how much more and for how long (extended loan tenure) you will need to pay for deferring your EMIs against the loan for sixth month period.
Illustration: Considering you took a repo rate-linked home loan of Rs. 45 lakh in January 2020 and now go for the 6-month moratorium, you would have to service 24 more EMIs. This is considering the pay out of original EMIs in all the scenarios. Here in the loan was taken at an interest rate of 8% and tenure was 25 years that is equivalent to 30 months. Now since January as RBI has cut repo rate twice, first by 75 bps and last i.e. yesterday by 40 bps, your interest outgo taking into account the reduced repo rate will be higher by Rs. 6.28 lakh if you opt for the moratorium relief of 6-months.
| Post Repo-rate reduction | |||
|---|---|---|---|
| Original Home loan | |||
| Without moratorium | Availing 6-month moratorium | ||
| Loan Amount | 45,00,000 | 44,61,190 | 44,61,190 |
| Interest rate | 8% | 6.85% | 6.85% |
| Overall loan tenure (In months) | 300 months | 239 | 263 |
| EMI | 34,732 | 34,732 | 34,732 |
| EMI Moratorium | NA | NA | 6 months |
| Overall interest | 59,19,519 | 37,70,792 | 43,98,351 |
| Interest saved over original loan | 21,48,727 | 15,21,168 | |
| Additional interest due to 6-month EMI moratorium | 6,27,559 |
Source: Mortgageworld.in
Furthermore, as the interest component on loan is on the higher side in the initial years, those who have recently taken loan shall be severely hit as both the number of EMIs as well as interest burden will pile up sharply for them. So, until and unless you are facing severe cash crunch, it shall be best to service your outstanding debt.
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