2 min read
05 Jan 2021

A moratorium period is a temporary suspension of loan payments, typically granted by lenders, allowing borrowers to defer repayment for a specified time. This period can apply to various types of loans, including home loans, and is particularly useful if you face financial difficulties or delays in your project.

Taking a home loan to finance your dream home is a significant financial decision. However, starting repayment immediately may not always be possible due to other financial commitments. Additionally, if there is a construction-related delay in your project, you might prefer to defer your home loan payments. In such cases, understanding what is moratorium in loan can be highly beneficial. A moratorium period on your home loan allows you to temporarily pause your repayment obligations, offering you some financial relief until you're ready to begin paying. It ensures you're not burdened with immediate repayment pressures, especially when managing other expenses.

What is a moratorium period?

A moratorium period is a duration when the borrower doesn’t have to make the home loan EMI payments. This means that you do not have to start repaying your home loan as soon as your loan gets disbursed to you. Instead, you can avail of an EMI holiday and begin paying EMIs after a break. Lenders offer this facility to help you plan your finances better to get acquainted with the lengthy obligation of a home loan in a more organised manner. Understanding the moratorium period meaning can help you manage your finances effectively. Bajaj Finserv, for example, grants a 3-EMI holiday on a home loan up to Rs. 15 crore*.

What is an example of moratorium period?

A common example of a moratorium period is when a borrower takes out a home loan but faces delays in construction or financial setbacks. For instance, if you secure a home loan but construction delays push back your move-in date, your lender may offer a six-month moratorium period. During this time, you are not required to make EMI payments. This period allows you to manage your finances without the pressure of immediate repayment, easing your financial burden while you address any project delays or other concerns.

What are the benefits of moratorium period?

  1. Financial relief during difficult times: A moratorium provides a temporary break from loan repayments, offering relief during financial hardships like job loss, medical emergencies, or economic slowdowns.
  2. No immediate financial burden: Borrowers can manage essential expenses without the stress of paying EMIs during the moratorium, maintaining financial stability.
  3. Helps avoid loan defaults: By pausing payments, borrowers avoid loan defaults, late fees, and penalties, protecting their credit score.
  4. Time to regain financial stability: The period allows borrowers to stabilize their income sources or recover from financial setbacks, ensuring they can resume payments smoothly.
  5. Flexibility in loan management: It offers flexibility to restructure repayment schedules, making future EMIs more manageable.
  6. Credit score protection: Timely resumption after the moratorium safeguards creditworthiness, ensuring access to future loans.

A moratorium is especially helpful for home loan borrowers in challenging times. Bajaj Housing Finance offers tailored home loan solutions with flexible terms.

How does moratorium period work?

A moratorium period allows borrowers to delay their EMI payments for a specified duration after the loan is disbursed. During this period, you are not required to make monthly payments, giving you time to stabilize your finances before starting regular repayments. However, interest accrues on the loan during this time, and the total loan amount increases. After the moratorium period ends, you begin repaying the loan through EMIs, which are calculated based on the principal and accumulated interest. This flexibility helps borrowers manage large financial commitments more effectively.

How to calculate moratorium period with help of example

The moratorium period refers to the duration during which borrowers are exempted from making loan repayments, usually on principal or both principal and interest. Here's an example to understand its calculation:

Suppose you take a home loan of Rs. 20,00,000 for 20 years (240 months) at an interest rate of 8% annually. The bank offers a moratorium period of 6 months.

  • Loan start date: January 2025
  • EMI payments begin: July 2025 (after 6-month moratorium)

During this period, interest continues to accrue on the principal amount. For a 6-month moratorium:

  • Monthly interest = (loan amount × interest rate) ÷ 12
  • Rs. 20,00,000 × 8% ÷ 12 = Rs. 13,333

Total interest during the moratorium = Rs. 13,333 × 6 = Rs. 80,000.

How to avail of a moratorium on your home loan?

The terms and conditions for the moratorium period on your home loan can vary across lenders. To avoid confusion and make the best choice, look for lenders that offer a good break during the initial years of the home loan tenor. Remember to compare home loan interest rates carefully as many lenders, to make up for this break, may increase the interest rate once the holiday period is over.

Once you have decided on your lender, speak to them regarding your needs and clarify all other charges and procedures in advance to ensure you get easy repayment terms through the entire tenor, even after the EMI break.

Apart from availing of a moratorium another way to enjoy paying lower EMIs is to opt for a variant such as a Flexi Hybrid home loan where you pay interest-only EMIs in the first few years (up to 4 years) of your home loan tenor. This also helps you adjust to EMIs conveniently and begin paying full EMIs once your income also increases.

Additional Read: 3 Simple steps for effective home loan management

Bajaj Finserv brings you pre-approved offers for personal loans, home loans, business loans, and a host of other financial products. Not only does this simplify the process of availing of financing, but it also helps you save on time. All you have to do is share a few basic details and check out your pre-approved offer.

Difference between moratorium period and grace period

A moratorium period is a specific time frame during which loan repayments are entirely suspended, usually granted due to financial hardship or project delays. It allows borrowers to delay payments without penalty, often at the beginning of the loan term.

In contrast, a grace period is a short, defined period after a payment due date during which the borrower can make a payment without incurring late fees or penalties. It does not suspend the loan; instead, it provides additional time to make a payment before consequences such as late fees or impacts on credit scores occur.

Key aspect

Moratorium period

Grace period

Definition

A specific duration allowing borrowers to defer or pause loan repayments entirely.

A brief extension beyond the due date to make payments without penalties.

Duration

Typically lasts several months to a few years.

Usually a few days to a month.

Interest accumulation

Interest continues to accrue on the loan amount during this period.

No interest is charged during this time, depending on the lender’s policy.

Impact on credit score

Doesn’t affect your credit score if approved by the lender.

Payments within this period usually don’t harm your credit score.

Application

Requires lender approval and formal documentation.

Automatically included in loan terms with no extra application needed.

 

Tips to get moratorium on your loan

  1. Understand the terms: Review your loan agreement to see if it includes a moratorium clause.
  2. Check cligibility: Ensure your situation (e.g., job loss, medical emergency) qualifies for a moratorium.
  3. Contact your lender: Approach your lender with a formal request explaining your need.
  4. Provide documentation: Submit proof of financial hardship, such as income loss or medical bills.
  5. Negotiate terms: Discuss the moratorium duration and post-moratorium repayment plan.
  6. Stay updated: Monitor policy changes; government schemes may offer temporary relief.
  7. Seek professional advice: Consult a financial advisor to assess long-term impacts.

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Frequently asked questions

How many months are there in a moratorium period?

A moratorium period typically refers to a specific period during a loan's tenure when the borrower is not required to make regular loan repayments. The duration of the moratorium period can vary depending on the terms and conditions of the loan agreement and the policies of the lending institution. Commonly, moratorium periods for different types of loans can range from a few months to several years.

What is the meaning of a 3-month moratorium?

A ‘3-month moratorium’ means that the borrower is granted a period of three months during which they are not required to make regular loan repayments. This term is commonly used in the context of loans and financial agreements.

Can I stop my EMI for 2 months?

Whether you can temporarily stop or defer your EMIs for two months depends on your lender's policies, the type of loan, the reason for deferral, and your credit history. Contact your lender to discuss your situation and understand their specific terms and conditions. Keep in mind that EMI deferment can have implications such as accrued interest and a potentially extended loan term.

Can I pay EMI during the moratorium period?

Yes, you can choose to pay your EMIs during a moratorium period, even though it is not mandatory. Making voluntary payments can help reduce the overall interest cost of your loan, but keep in mind that interest may still accrue during the moratorium. Contact your lender to ensure payments are properly credited.

Can we cancel the moratorium period?

Yes, in many cases, you can cancel or opt out of a moratorium period if you initially chose to avail it but later decide to resume making regular loan repayments.

What are the disadvantages of the moratorium?

The disadvantages of a moratorium include:

  1. Accrued interest: Interest continues to accumulate during the moratorium, increasing the overall loan cost.
  2. Extended loan term: It may lead to a longer repayment period, resulting in higher interest expenses.
  3. Increased total costs: The accrued interest and term extension can raise the total cost of the loan.
  4. No principal reduction: The principal amount remains unchanged as you do not make principal repayments.
  5. Credit report impact: It could negatively affect your credit history.
  6. Potential legal issues: Breaching the loan agreement may lead to legal consequences.
  7. Delayed financial goals: It can postpone achieving financial objectives.
  8. Balloon payments: Some lenders may require a lump-sum payment at the end of the moratorium.
How much EMI will increase after the moratorium?

The increase in Equated Monthly Instalments (EMI) after a moratorium period depends on various factors, including the terms of your loan agreement and the specific conditions set by your lender.

What is moratorium period?

A moratorium period is a temporary suspension of loan repayments granted by lenders, allowing borrowers to defer payments for a specific duration without penalties. It helps manage financial strain during challenging times or delays in projects.

Is moratorium period good or bad?

A moratorium period can be beneficial as it provides financial relief and flexibility during tough times. However, it may lead to higher overall costs due to accrued interest. Its impact depends on individual financial situations and loan terms.

What is the maximum moratorium period?

The maximum moratorium period varies by lender and loan type, but it typically ranges from 3 to 12 months. It’s essential to check with your lender for specific terms applicable to your loan.

Is interest paid during the moratorium period?

Yes, interest usually accrues during the moratorium period and is added to the loan principal. This means that while payments are deferred, the overall loan cost may increase due to the accrued interest.

Is moratorium mandatory?

No, a moratorium is not mandatory. It is an optional facility provided by lenders to help borrowers manage their finances. If you feel confident in starting your EMI payments immediately after loan disbursement, you can choose to skip the moratorium period and begin repayments as planned.

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