A moratorium period is a period during a loan term when the borrower is not obligated to make a payment. It is a waiting period before the borrower starts making fixed monthly payments.
Loan repayment usually starts as soon as the loan is granted. But a moratorium period delays the equated monthly installment, or EMI, for a given time period.
In real estate, a moratorium period is known as an “EMI holiday.” This means the buyer has a certain amount of time before he must start paying his fixed monthly mortgage payment by a certain date of the month. The moratorium is a grace period of sorts after the loan amount has been disbursed to the borrower. However, interest accrues during the moratorium period and the borrower must pay it.
Moratorium periods are common with educational loans and mortgages.
Moratorium period example
Educational loans are repaid after a student graduates and gets a job. The time between when the student got the loan to pay his school tuition and fees and when he graduated and got a job and had to start making fixed monthly loan payments is a moratorium period.
For home loans, there is often what is called a fixed moratorium period. For example, if there is a delay in construction, the bank can give a buyer an EMI holiday.
Are you interested in a VA home loan? Find out more at Bankrate’s Veteran Homebuyer Central.