What Happens if the Value of your House Declines?

If one goes by market speculation, the price of property may fall as much as 15% in metro cities in India. This may be good news for those planning to buy a new house. On the other hand, people who have already taken a loan to buy the house or are the ones selling the house, will not be very happy if this speculation comes true. If you form a part of the latter section of people, he is how you can cope with it.

How the bank looks at it

Banks avoid taking risks. They want to play safe while lending money and lend to those who, they feel, have the ability to repay the loan in time. If you have taken a home loan, and the value of the property falls thereafter, the bank may ask you to pay the difference in value. This situation will only arise if the current value is lower than the outstanding loan amount. 

How banks work with loans

A bank only lends a portion of the amount that you need to buy a house. Sometimes, the amount of the loan you receive turns out to be 85% of the actual value of the house. The bank pays you that amount and keeps the house as security for the loan. Once you repay the loan, you will be the owner of the house. If you somehow fail to repay the loan within the specified time period, the bank sells the house to recover the money. Thus, it is important that the market value of your house remains at least the same as the outstanding loan amount. This is the reason why banks ask you to pay the difference if the value of the property falls. 

What if you don’t pay the difference?

If the bank asks you to pay the difference, and you fail to do so, it is considered as a loan default. The bank has full right to seize and sell your house if you default on the loan. These clauses are mentioned in the agreement at the time of taking the loan.  

Act smartly

If a situation arises where you need to pay the difference, you must do so. It is better to pay a difference of 15% than lose the house altogether. Defaulting on a home loan will not only take away your home, but will also leave you with a bad credit report, making it difficult to avail loans in the future.

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