What is Moratorium Period in Home Loan?
A moratorium period in home loans is a specific period of the home loan tenor where borrowers will not have to repay any amount. The moratorium meaning is thus that this period is a waiting duration before the customer starts repayment of EMIs at the decided home loan interest rate. In usual cases, customers have to start repaying EMIs from the first day when they get the home loan amount disbursed till the final day of the tenor. However, when there is a home loan moratorium period, the customer will not have to pay anything in this duration to the lender. Although you do not pay anything in this duration, an interest income will be earned and accrued to your account.
The moratorium period meaning should be clear by now. This is usually given for education loans and home loans. This is also known as an EMI holiday at times. This is helpful for those who have worked out their eligibility using the home loan eligibility calculator and how much they can afford to repay courtesy the home loan EMI calculator. This period gives you time to plan things out before you start repaying the home loan. This time also helps you get your finances in order. In case of education loans, the student will be completing the course and getting a job post graduating and then the repayment of the loan will commence.
Benefits of Moratorium Period in Home Loan
The purpose of this period is to make sure that the customer is ready to repay the loan from a financial perspective. The interest of the loan in the moratorium period will be calculated on the principle of simple interest. It will only be worked out on the amount actually offered and not the entire loan. The interest charged will be computed and added to the principal amount. Thereafter, once you start repaying EMIs, the accumulated interest in the moratorium period will be included in the EMIs along with the principal amount.
Moratorium periods are not grace periods. They are given to borrowers to get their finances on track and start repaying the home loan without the possibilities of defaults while grace periods are added time given for the clearing of loan dues. Interest is not charged in the grace period unlike a moratorium period. Check with your lender about a moratorium period in case you need one before you start repaying your home loan. Make sure that you understand all the home loan terms and conditions carefully.
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