With multiple loan options, buying a home has become relatively cheap. Unlike a common perception, Home Loan repayment does not necessarily be a vanilla repayment of loan EMIs.
Growing competition in the home loan segment has ensured that banks and non banking financial companies (NBFC’s) offer various loan repayment options. Depending on what suits you the most, you can opt between many repayment plans to make your home loan more pocket friendly. So the next time you seek a home loan, check with your bank about the possible repayment options or choose from the ones gives below.
Step Up Repayment EMI
A step up repayment option is made keeping in mind the financial growth of you as a borrower. With time your income will grow which means that you will be capable of paying a higher loan EMI in the future. So step up repayment options ensure lower loan EMIs in the initial years and a gradual increase in EMI over time as the borrower grows financially.
Pros And Cons: While a step up repayment allows borrowers to seek home loans early in life with lower EMIs initially, the increase in EMI later is based on expected growth of income. If the income does not grow as anticipated, the higher EMIs later can be financially draining.
Step Down Repayment EMI
Step down repayment is the exact opposite of a step up repayment plan. Here the loan EMIs are higher upfront and reduce gradually with time. Step down repayment option is good if you are seeking a home loan later in life.
Pros And Cons: Higher EMIs initially cater to repayment of interest component. The biggest benefit of step down EMI is that allows for easy and lower repayment in the sunset years allowing the borrowers to focus on retirement planning.
If you are buying an under construction property, you can opt for a tranche based repayment plan. Under this option you pay a fixed amount as EMI till the time the property is ready for you to move in. The EMI includes the minimum amount payable as interest while any amount exceeding the minimum amount goes towards payment of the principal amount.
Pros And Cons: By opting for a tranche based option, your EMI starts immediately without any moratorium period. On the positive side, the sooner you start repayment, the faster you will repay the loan thus resulting in savings in overall cost of purchase post loan.
Repayment By Linking Loan Account With OD Account
Many banks offer linkage of the home loan account with a dedicated account opened within that bank. This works just like an overdraft facility. So any surplus amount for your home loan repayment can be deposited into the linked bank account. As a result the interest on the outstanding for that period is reduced.
Pros And Cons: The prime advantage is liquidity as you can always use the money parked in your linked bank account. On the downside the calculations for interest repayment for such loans can be quite complicated to understand.
Loans With Delayed EMI Payment
Many home loans today come with an option of ‘buy now pay later’ where the actual loan EMI starts after a pre-defined moratorium period. The tenure can range between 36 to 60 months where you pay only pre EMI interest while the actual EMI repayment starts after the moratorium period.
Pros And Cons: While easy on the pocket initially, such loans can be a double edged sword. The later you start loan EMI repayment, the higher is the chance you may become financially strained with multiple needs.
Home Loan With Waiver Of EMI
Some home loans today offer waiver of EMI option where on successful repayment of loan EMI up to a minimum tenure period, the bank waives off some EMIs.
Pros And Cons: The minimum loan amount and loan tenure is fixed and such waive off facility is not available for all loans or by all banks.
Home loan repayments can be quite flexible and varied. It is essential to choose a repayment option that suits you and is in tune with your overall financial plan.
(The writer is CEO, BankBazaar.com)