Home loan restructuring: How to reduce your EMI, eligibility rules and impact on credit score explained
Losing a job, facing a medical emergency or experiencing a sudden reduction in income can make it difficult to keep up with home loan EMIs. For borrowers with outstanding loans running into several lakhs, even a few missed payments can create financial pressure and affect their credit history.
However, borrowers struggling with repayments may have options other than defaulting on their loans. One possibility is home loan restructuring, under which a lender modifies the repayment terms to make instalments more manageable. While this can provide immediate relief, it may also increase the total interest payable and affect the borrower's credit profile.
Home loan restructuring involves modifying the original terms of a loan agreement when a borrower faces financial difficulties.
Under the Reserve Bank of India's regulatory framework for stressed assets, restructuring refers to concessions granted by lenders because of a borrower's financial difficulties. These may include changes to the repayment period, instalment amount or interest rate.
For instance, a borrower who has lost their job and cannot afford the existing EMI may request the bank to extend the repayment period. This would reduce the monthly instalment but could increase the overall interest cost.
However, restructuring is not an automatic entitlement.
Banks assess requests based on their internal policies, the borrower's repayment history, financial circumstances and ability to meet the revised repayment obligations. Borrowers may be required to submit documents establishing their financial difficulties, including salary statements, bank statements or evidence of job loss.
Importantly, restructuring does not necessarily reduce the outstanding principal. It primarily changes the terms under which the borrower repays the loan.
One way to reduce the monthly repayment burden is to extend the outstanding loan tenure.
Consider a borrower with an outstanding home loan of ₹40 lakh at an annual interest rate of 8.5%. If the remaining repayment period is 15 years, the monthly EMI would be approximately ₹39,390.
However, if the bank agrees to extend the remaining tenure to 20 years, the EMI would fall to approximately ₹34,713. This translates into monthly savings of around ₹4,677.
While the reduction may provide immediate financial relief, there is a significant long-term cost. At the same interest rate, the total interest payable over 15 years would be approximately ₹30.90 lakh. Extending the repayment period to 20 years would increase the total interest to around ₹43.31 lakh.
This means the borrower would pay approximately ₹12.41 lakh more in interest in exchange for a lower monthly EMI.
The illustration assumes a constant interest rate, no additional charges and no prepayments. Actual costs will depend on the lender's revised repayment terms.
Apart from extending the repayment period, lenders may consider other arrangements depending on their policies and the borrower's financial circumstances.
One possibility is a temporary repayment moratorium, during which the borrower receives relief from scheduled instalments for an agreed period. However, a moratorium does not automatically mean that interest stops accumulating. Unpaid interest may increase the outstanding repayment obligation.
Another possibility is changing the interest rate structure or modifying the repayment schedule. Borrowers with floating-rate home loans should also distinguish between restructuring due to financial hardship and the options available when interest rates change.
According to the RBI's FAQs updated on October 1, 2025, lenders must provide borrowers with options when floating interest rates are reset.
These include changing the EMI, extending the tenure or adopting a combination of the two, subject to applicable conditions. Borrowers must also be offered the option to switch to a fixed interest rate, in accordance with the lender's board-approved policy.
These provisions are different from restructuring a stressed loan and do not automatically entitle borrowers facing financial difficulties to a moratorium or other concessions.
Restructuring may provide relief from immediate repayment pressure, but borrowers should understand its potential consequences for their credit history.
A formally restructured loan may be reported to credit information companies, and its impact on future borrowing will depend on the account's classification, repayment history and applicable reporting requirements.
Under the RBI's prudential framework, restructuring can also have implications for how lenders classify stressed loan accounts.
Consequently, borrowers should not assume that a restructured loan will have the same credit implications as an ordinary change in EMI or tenure following an interest rate reset. Missing repayments before approaching the lender can create additional complications.
A delay in EMI payments may attract charges and affect the borrower's repayment record. Continued defaults can eventually result in the loan being classified as a non-performing asset, subject to applicable regulatory norms.
For borrowers facing temporary financial difficulties, approaching the lender before missing instalments may help them understand the available options.
Before applying for restructuring, borrowers should understand how the proposed changes would affect both their immediate monthly obligations and long-term repayment costs.
A lower EMI may appear attractive, particularly during a period of reduced income. However, extending the repayment period could substantially increase the total interest payable.
Borrowers should also ask their lender whether the revised arrangement involves additional charges, how unpaid interest will be treated and whether the restructuring will affect their credit reporting.
They should obtain the revised repayment schedule and terms in writing before agreeing to any changes.
Kirti jha
Kirti Jha is a Senior Content Producer at Mint, where she writes on mutual funds, taxation, personal finance and macroeconomic developments. Her reporting focuses on helping readers understand complex financial developments through data-driven, research-backed stories that explain how policy changes, market trends and regulatory decisions affect investors and households. <br><br> Before joining Mint, Kirti worked at ET Money, where she specialised in mutual fund research and investment analysis. She tracked portfolio disclosures, fund manager strategies, sectoral allocation shifts and investment trends, distilling large datasets into investor-focused insights. Her work combined quantitative analysis with consumer-centric storytelling, enabling readers to better understand fund positioning, portfolio changes and long-term investment opportunities.<br><br> Kirti holds a Bachelor's degree in Economics from Indraprastha College for Women, University of Delhi, and a Master's in Finance from the Jindal School of Banking & Finance at O.P. Jindal Global University. Her academic training emphasised analytical thinking, quantitative research and financial decision-making, providing a strong foundation in understanding capital markets, financial systems and economic policy. With a combined experience in investment research and financial journalism, she is committed to producing accurate, accessible and insightful journalism that empowers readers to make well-informed financial decisions.
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