Home loan interest rate, loan tenure, processing fee, and documentation are some of the common factors that homebuyers often consider while availing a home loan. An important parameter that is often ignored is the repayment option.
Never thought of it, right? But ever wondered why banks would offer various repayment options to borrowers?
Well, the primary concern of any bank, before sanctioning the home loan, is to ensure that you can comfortably repay the home loan on time. This is precisely the reason why most banks come up with several repayment schemes.
Other than the plain vanilla home loan plan, here are a few other repayment options that you can consider. It is important that you determine the right repayment plan as many banks do not allow borrowers to change the plan frequently.
This plan is aimed at young borrowers who have just started their careers. This plan allows the borrower to receive a higher loan amount and lower payments in the initial years.
It is directly linked to the borrower’s financial growth, and hence the EMI increases with an increase in income. There is no moratorium period in this loan, and the actual EMI begins from the first day.
The plan is linked to your financial growth. Thus, if your finances falter in the years ahead, the repayment may become difficult.
As the name suggests, it is just the opposite of the step-up plan. In this plan, the borrower needs to pay more in the initial stages of the loan tenure, and the EMI gradually decreases as the loan matures. It is also known as the Flexible Installment Plan.
A step-down plan is a good option for borrowers who are nearing their retirement.
In this plan, borrowers choose for fixed interest rates for a set period or the complete tenure of the loan, and hence the EMI also remains constant for the selected period. If it is fixed for a particular period, then EMIs are adjusted after that set period as per the market rate.
This plan is good as your interest rate will not be affected by market conditions and will remain the same. This, in turn, will help you plan your finances well.
This is a customised repayment plan that fulfils the needs of families in which the parents wish to buy a property or house jointly with their children who have just started their careers and can contribute towards loan payments. In this plan, the EMIs are higher in the initial stages.
This plan is aimed at borrowers who purchase under-construction properties. While the borrowers have to pay interest on the loan disbursed depending on the stage of construction of the property, this plan facilitates buyers to save interest by allowing them to pay an additional amount at fixed intervals.
In case you wish to start principal repayment immediately, you have the option to start paying EMIs on the cumulative amount disbursed. The amount paid will be first adjusted for the interest. The balance amount will go towards principal repayment.
If you wish to claim tax benefits on your home loan, this might not be an ideal option. There is no tax benefit on principal paid during the construction period. However, interest paid gets the tax benefit post-occupancy of the home.
This is the most popular repayment plan in India as it allows borrowers to pay a surplus whenever the borrower has increased savings or disposable income.
This plan also allows borrowers to pay lump sum amounts towards the loan.
This plan is quite similar to the step-up plan where the borrower pays lower EMIs in the initial stages and higher EMIs in the later stages of the loan. Here, the difference is that the borrowers pay comparatively lesser instalments during the commencement of the loan term. In an ideal scenario, you will pay about one-third of the loan amount towards the last instalments.
Some of the leading banks also offer a repayment plan where the EMIs start at a later date. The date is agreed upon by the borrower and bank. Once the agreed period ends, the EMI begins and is increased during the subsequent years at a pre-agreed rate.
This plan is usually available only for salaried and working professionals aged between 21- 45 years.
Lastly, some banks also offer fast forward home loans. In this, 12 EMIs can be waived off if all other instalments have been paid regularly by the borrower. Additionally, six EMIs are waived on completing ten years and another six on completing 15 years. For availing this plan, the loan tenure has to be 20 years with a minimum loan amount of Rs 30 Lakh.
All said and done, there are several home loan repayment options available. So, which one do you think suits you the best? Tell us in the comments.
