The lockdown has hit bottom-lines so badly that corporate India is slashing jobs to remain afloat. Job losses and salary cuts have become so widespread that such news reports no longer make it to the front pages of newspapers. Losing your job and the security of a regular income can turn your world upside down. It is worse if the individual has recently made a large financial commitment such as a big-ticket purchase or an insurance policy. Here are a few steps that can help mitigate the problems before they turn overwhelming.
If you bought real estate with a loan
Due to job losses and pay cuts, many home buyers and loan customers may want to change their plans now. Unfortunately, real estate has very high entry and exit costs. Buyers pay almost 5-6 per cent of the value of the property as stamp duty and registration charges. Even if they want to get out, they still have to bear this loss. Besides, one may not be able to sell off the property in a hurry. Real estate has been a buyer’s market for several years now and COVID has only made things more difficult for sellers.
It gets worse for a person who has taken a loan for the purchase. He will have to close the loan before he could sell the property. It’s a tad easier if the new buyer is willing to pay off the home loan. This will depend on whether the buyer is taking a loan or using his own savings for the purchase. In case he is also taking a loan, the owner will have to take a bridge loan to close his home loan before he sells the property.
If you bought a car with a loan
Compared to a house, a vehicle is a smaller purchase. But, the owner will have to suffer a loss if he wants to get out of the deal due to a change in his financial situation. As everybody knows, a car loses 15 per cent of its value the minute it rolls out of the showroom. There are also certain fixed costs on a loan, including the file processing charges and documentation fees. Also, the owner will have to shell out a prepayment penalty since he has to foreclose the loan and get the bank hypothecation vacated before he sells the vehicle. Though the prepayment charge is only 1-2 per cent of the outstanding amount, keep in mind that foreclosing a car loan can affect your credit score.
If you took a large insurance policy
An insurance policy is a great investment, but not if you are jobless. If you bought an insurance policy recently and want to close it now, you need to act immediately. Insurance companies allow a 15-day free-look period, during which the buyer can return the policy with only minor deductions. Some companies even extend the free-look period to 30 days. If that window is closed for you, there is no option but to keep the policy and hope for things to improve on the job front by the time the next premium is due in the following year. If things don’t improve, you will have no choice but close the policy. If a traditional endowment policy is closed before three years, the premiums paid will be forfeited. If the policy has completed three years, it will have a surrender value of about 30-35 per cent of the premiums paid. In the case of ULIPs, non-payment of premium leads to discontinuation of the policy. The corpus goes into a discontinuation fund and earns 4 per cent before it is returned to the policyholder at the end of the five-year lock-in period.
While it is a good idea to terminate costly endowment policies and ULIPs, don’t close term insurance plans and health covers just because you don’t have a job. These insurance plans become even more critical in such situations.
If you started SIPs in mutual funds or NPS
Mutual fund SIPs and NPS contributions are easy to stop. You can go to the website of the fund house and place a request for terminating the SIP. But it takes at least 15 days and SIPs that are due before that will go through. Similarly, you need to log into our NPS account and terminate the SIP mandate. Mutual funds can also be redeemed if they are not ELSS schemes that are subject to lock-in of three years. However, you will be slapped with the exit loads if the withdrawal is within one year of investment.
For NPS contributions, withdrawal is not allowed before retirement except in certain exceptional circumstances.
Good and bad days aren’t permanent; normalcy will certainly prevail soon enough. Pause and Reset.
