Home loans are one of the biggest financial commitments made by an individual. Owning a house is a dream for most and this is why home loans are very popular in the loan market. With the availability of multiple home-loan providers in the market, today the borrower is the king.
In today’s age, most home loan providers offer various customized repayment solutions to cater to the borrower’s needs. Some offer flexibility in repayment of the loan, while others offer solutions that are linked to the different stages of home construction. These plans are framed to benefit the lender as well as the borrowers. Some of the plans can also increase the repayment capability of borrowers and offer various tax benefits.
Most lenders design attractive interest rates and make home-loan offers that entice customers. A home loan can be easily availed but when it comes to repayment it could sometimes turn into a burden. Thus, while applying for a home loan, one must explore all possible repayment options before finalising one.
Additional Reading: How Best Can You Repay Your Home Loan Sooner?
Here are 7 home loan repayment options that you can choose from.
Few of the home loan providers provide EMI holiday at the beginning of the home loan repayment. EMI holiday is a delay or postponement in EMI deduction from the borrower’s bank account. The delay is usually for a few months post disbursal of home loan. It is aimed at allowing the borrowers to begin making the repayments after 3 months of starting with the home loan.
Such EMI holidays offer significant relief since, during the initial phase of home loan, borrowers may have to clear some expenses such as registration fees, stamp duty, etc for the home. It offers relief to the borrowers and allows them to get their finances in place and even make a repayment plan for future EMIs to be efficient.
Step-Up Repayment means a rise in the EMI amount since it involves the loan tenure being increased. During the first few years of repayment of your loan amount, you can pay less EMI, but the amount will rise since the loan tenure increases.
A Step-Up Repayment is meant for borrowers who are new in their career and need the stability of income. It is made available to such individuals since during the beginning of their career there may not be enough funds available for paying large EMIs. As their career picks up and the financial situation improves, they can afford a rise in their EMIs.
Step-Down Repayment is different from Step-Up Repayment since here the borrower gets lower EMI amounts in the later part of the loan tenure. During the first few years of home loan tenure, a borrower has to pay a higher EMI amount, and as the loan tenure progresses, the amount starts decreasing.
A Step-Down Loan Repayment is ideal for borrowers in the retirement phase. This option makes it easy for them to pay high EMIs since their monthly income is steady. The gradual decrease in EMI amount helps to reduce the financial burden once the borrower reaches retirement phase.
Lump-sum Repayment allows borrowers to repay the whole loan amount as soon as possible before the loan tenure ends. Home loans taken for under-construction homes are not disbursed at once and are mostly given out in instalments which are phased out on the basis of construction progress.
In such cases, the borrower can pay interest on the amount sourced until the final loan instalment has been paid out. Post the disbursal of the final amount, the borrower can begin making EMI payments. If the borrower wants to repay the principal loan amount if he has funds available, he/she can begin the EMI payments for the loan amount which has been disbursed. The lump-sum amount gets adjusted for interest and the balance is adjusted against the principal.
Additional Reading: 7 Home Repayment Options to Choose From
Balloon Repayment is somewhat similar to lump-sum repayment. However, here the borrower can pay a large amount (nearly one-third of the total loan amount) for the final instalment.
This option is ideal for shorter terms since the final balloon amounts are almost double the value of initial instalments. Here, a small chunk of the principal amount is amortized over some time.
Refinancing means repaying the outstanding home loan balance by seeking a new loan. Refinancing can be sourced at lower interest rates and improved repayment options. This allows the borrower’s repayment capability remains unimpacted.
An existing home loan can be refinanced with a new loan that offers competitive interest rates and allows lowering of EMIs. A borrower can also negotiate for cutting down on the loan tenure while going for refinancing. Transferring a home loan amount to a new credit provider can also help in improving the credit score.
For individuals who have surplus cash, it can be used to prepay home loan EMI. Prepayment helps to cut down the loan tenure by allowing the borrower to repay the loan as fast as he/she can. Prepayment is allowed for part or whole outstanding loan amounts. This option significantly helps in lowering the EMI on any home loan. It is important to note that few home loan providers may charge a penalty while opting for prepayment. Hence, one should be aware of such penalty charges while considering a prepayment option.
Home loan repayment needs a good amount of planning and is extremely crucial while borrowing a home loan. Borrowers must weigh all the positives and negatives of the above-mentioned options and opt for one which best suits their budgeting goals. Home loans can allow one to fulfil the dream of owning a beautiful home, but while sourcing a home loan, all options must be thoroughly considered and planned out.