Your aim should be to complete the loan as early as possible through prepayments but still scout for EMI paying options while selecting the lender.
Paying home loan EMIs is a long-term commitment as it may span anywhere between 10 and 30 years. The financial situation of the borrower may see a huge change over the years. So, it’s always better to keep flexibility while entering into a contract with the lender. Your aim should be to complete the loan as early as possible through prepayments but still scout for EMI paying options while selecting the lender.
EMI is a fixed sum that you need to pay each month to the lender after availing the loan. However, the modalities of repayment can differ. It’s better to explore various home loan repayment options before finalizing the deal.
Here are a few home loan repayment options that you may consider, in addition to the plain-vanilla EMI option.
1. Home loan with delayed start of EMI payments
While availing the home loan, you may opt for Flexipay loan in which the EMI begins at a later date. In this home loan there’s an option to go for a moratorium period of anywhere between 36 to 60 months during which the borrower need not pay any EMI but only the pre-EMI interest is to be paid. Once the moratorium period ends, EMI begins and will be increased during the subsequent years at an agreed rate as per the agreement papers.
Compared to a normal home loan, in this loan one can also get a higher loan amount of up to 20 percent. This kind of loan is available only to salaried and working professionals aged between 21- 45 years.
Although initially the burden is less, servicing an increasing EMI in the later years, especially during middle age or nearing retirement, requires a highly secure job that should also ensure decent annual increments. Carefully opt for such a variant only if there’s a need as the major portion out of the EMI in the initial years represents interest.
2. Home loan linked to bank account
In some banks, a current account is opened while sanctioning the home loan and both are linked. Any amount that you keep in the current account works to your advantage in bringing the interest burden lower. The interest liability of your home loan comes down to the extent of surplus funds parked in the current account.
You will be allowed to withdraw or deposit funds from this current account as and when required. Interest on Home loans will be calculated on outstanding balance of loan minus balance in the current account. Although the interest burden gets reduced considerably, such loans come at a slightly higher rate of interest while calculation of EMI.
3. Home loan with increasing EMI’s
There are home loans available with lenders in which the EMI keeps increasing after the initial few years. Subsequently, the repayment is accelerated proportionately with the assumed increase in your income. Paying increasing EMI helps in reducing the interest burden as the loan gets closed earlier.
In such loans, you can avail a higher amount of loan and pay lower EMIs in the initial years. The repayment schedule is, however, linked to the expected growth in one’s income. If the increase falters in the years ahead, the repayment may become difficult.
4. Home loan with decreasing EMI’s
Some loans are structured in such a way that the EMI is higher during the initial years and subsequently decreases in the later years. Interest portion in EMI is as it is higher in the initial years. Higher EMI means more interest outgo in the initial years. Therefore, have a prepayment plan ready to clear the loan as early as possible once the EMI starts decreasing.
5. Home loan with waiver of EMI
If you have been paying EMIs regularly without any default, some lenders provide an incentive to such borrowers. There are lenders who offer home loans in which a certain number of EMIs gets waived off if all other EMIs have been paid regularly. Keep a tab on any specific conditions and the processing fee and see if it’s in line with other lenders. Still, keep a prepayment plan ready and try to finish the loan as early as possible.
