7 Options for Repaying a Home Loan

As the prices of real estate are going up across all major cities, Home Loans have become a significant source of finance for home buyers in India. Pre-approved Home Loans are offered by most of the banks and NBFCs (Non-Banking Financial Companies) at varying rates of interest. Every financial institution is offering different Home Loan deals to its customers, but this makes the process a tiring one for the customers.

You need to do a lot of research and hold meetings with various lenders to be able to decide, as to which Home Loan Deals suits you. But before you choose to avail a Home Loan, you should consider the various repayment options available to you.

Yes, there is more than one way to repay your Home Loan EMIs (Equated Monthly Instalments). Many lenders will offer customised options for you depending on your income, age and eligibility. If you plan wisely, you can take advantage of such personalised opportunities, which can translate into significant savings in the long run.

1. Delayed Start of EMIs: Many banks and financial institutions offer this facility wherein you can choose to delay the beginning of repayment EMIs for a finite period. Depending on the lender the moratorium period can be anywhere between one month to sixty months. During this period, you are only supposed to serve the interest and need to start paying the principal amount only after the moratorium period has ended. But you must be cautious that although your initial EMI burden might be reduced, you need to pay higher EMIs for the remaining period as the principal payment outstanding for the moratorium period would be divided over the remaining EMIs.

2. Linking Loan Account with Idle Savings: Some Home Loan products offer you the option to link your Home Loan account to a current account that is opened simultaneously. The interest rate on the Home Loan is calculated on the total amount outstanding minus the funds parked in your current This helps reduce your interest liability to the extent of funds parked in the current account,and you can use your current account as usual. Although in this case the interest burden is significantly reduced, the banks might ask for additional charges against such loans.

3. Increasing EMIs: Under this option, you get the flexibility to avail a high-value loan but start with low EMIs, which will be increased gradually every year. This facility is available for salaried individuals under the assumption that your salary is going to increase after a certain period and it would be easier for you to honour higher EMIs. There is no moratorium period,and you are supposed to pay EMIs from the first month itself. It helps in closing the loan earlier as the interest burden gets reduced. But you should consider that if your income does not increase in proportion to the increase in EMIs it could disturb your financial planning.

4. Decreasing EMIs:Under this option, repayment starts with a higher amount and then it reduces gradually. This is particularly beneficial for you if you are retiring close to the completion of the loan as you will have to pay lower EMIs and can save more for your retirement. But you should take care that higher EMIs initially mean that you are paying more interest from starting, so try and repay the loan amount as soon as possible.

5. Lump Sum Payment:Under this option, when you purchase a house in an under-construction property, you only need to serve the interest till the entire loan is disbursed. Your EMIs would start only after the entire amount has been disbursed by the lender. If your finances allow, you can also choose to start paying the principal immediately against the amount disbursedin particular stages. The amount thus paid would first go towards interest paymentand the remaining balance would be adjusted against the principal.

6. Longer Tenure Under this option, your eligibility is enhanced by up to 20% and your repayment tenure is also adjusted considering your retirement age to be 67 years, against the normal retirement age of 60 years. But this facility is offered by the lenders against a onetime charge of 1-2% of the total loan amount.

7. Waiver of EMI: Under this option, your lender will offer you a waiver of a particular number of EMIs, if your balance EMIs have been paid on time. The interest rate is same as that or a normal loan, but the repayment period is extended up to 20 years. So, you must compare with other lenders before committing to this scheme as longer repayment tenure means more interest burden.