When in pursuit of a home loan, you might come across many jargons which are not familiar. ‘Moratorium Period’ in home loan is a term every buyer should be aware of.

Shubham Agarwal, a product manager with an online company in Noida, is planning to buy a house and has been surfing the internet in search of a suitable property in the city. Though he has shortlisted a few, he is unsure about the finance process. He intends to take a home loan. On researching home loans, he becomes uncomfortably aware that he is clueless of the many jargons used.

After several futile attempts of searching for real estate jargons, he wrote on Open House, the Q&A forum of Magicbricks. “Please help me understand the term ‘Moratorium Period’. I am searching for a suitable home loan.”

We have agglomerated not just the definition of the term – Moratorium Period, but also other related information which will help potential buyers like Agarwal in their home buying process.

What is Moratorium period

It is the period during which a borrower is not required to pay any EMI to the banks. This period is a ‘holiday’ period before the actual EMIs begin. Usually, repayments begin as soon as the bank sanctions the loan but a waiting period can be availed if the buyer isn’t prepared to pay the EMI.

Moratorium Period in a home loan

If your home loan gets sanctioned during the construction phase of the project, you get a grace period for repayments. The duration of this period is customized as per the bank rules and developer’s relationship with the particular bank.

What you need to pay during Moratorium Period

Suppose you borrowed Rs 10 lakh from a bank on 10 per cent interest for 240 months with a Moratorium Period of three months. Either you can continue paying interest monthly or you can add these three month interestto your principal amount. In the latter case, the 10 per cent interest would be levied on the sum of the Principal + three month’s interest.

How long is the Moratorium Period

If the loan is disbursed for an under-construction property, the grace period is 18 months or one month after possession, whichever is earlier whereas, for a ready property, the cool-off period is minimum and is as short as one month.

Subvention schemes and Moratorium Period

You might have heard about subvention schemes, No-EMI offer, interest-free loans, etc. These have been closely related to the Moratorium Period. For instance, in an interest-free EMI scheme the builder pays the interest amount during the grace period which is limited till the time possession is offered. Similarly, for a No-EMI till possession offer, it’s the builder who pays the interest to the bank, where the principle amount remains same.

Should you start paying as soon as the loan gets disbursed

Some of the banks offer a concession on lending rates if the borrower starts repaying during the grace period. The concession may vary from bank to bank. In fact, the interest charged during the ‘holiday’ period is different- quarterly or half yearly on simple interest. But if you are not paying interest during the ‘holiday’ period, the accumulated borrowed amount gets updated and EMIs are adjusted accordingly by the bank.