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Home » Discover the Best Home Repayment Option for You: A Guide to Your Choices

Discover the Best Home Repayment Option for You: A Guide to Your Choices

When it comes to buying a home, it’s easy to focus on finding the right property and securing a favorable home loan. However, it’s equally important to consider the terms of repayment and take advantage of any options that could help reduce your monthly payments and overall interest costs.
Did you know that increasing your monthly EMI payments, even by a small amount, can lower your interest expenses? Or that making lump sum payments towards the principal every 2-3 years can also help? There are innovative home loan repayment options available that can help ease the burden of your loan repayment.

It’s worth taking the time to research these options and find the one that works best for your budget and financial situation. Seeking advice from experts at Refer Loan can also help you make an informed decision.

Home Loans with Increasing Monthly Payments(EMIs):

Have you thought about how your home loan payments could grow with your salary? A home loan with step-up monthly payments (EMIs) is a good option for those who expect their income to increase over time. This type of loan takes into account the possibility of a salary hike and adjusts your payments accordingly.

For example, let’s say you take a home loan of ₹20 Lakhs with an EMI of ₹25,000 per month and an expected salary increase of 10% per year. After the first year, your salary increases to ₹22 Lakhs and your EMI increases to ₹27,500 per month. This trend continues for the entire loan period, ensuring that you can easily manage your payments without any financial stress.

This type of home loan can be a good option for individuals who expect their income to increase over time and want to take advantage of the additional funds to pay off their loan more quickly. However, it’s important to carefully consider your financial situation and seek advice from experts to make sure this option is right for you.

Decreasing Monthly Payment Home Loans:

Another option to consider when taking out a home loan is a loan with decreasing monthly payments (EMIs). Unlike step-up loans, this type of loan starts with higher EMIs and decreases over time as the loan term progresses. This means that more of your payments in the early years go towards paying interest, while in later years you’ll be paying mostly principal.

If you have a high income but are approaching retirement, this type of loan might be a good fit for you. It’s important to have a plan in place for prepayment, so that you can fully take advantage of the decreasing payments. Consider seeking advice from Refer Loan experts to ensure that this option is the right choice for your financial situation.
Suppose you take out a home loan for 20 years for 25 lakhs with a 10% interest rate. Your initial EMI could be around 22,000 per month. As the years go by, your EMI decreases and in the later years, it could be around 18,000 per month. This way, you’ll be paying more towards the principal and less towards interest, ultimately reducing your overall interest costs.

Home Loans with Longer Repayment Periods:

When it comes to purchasing a home, you want to ensure that you have the resources to buy the best with all the amenities you desire. Sometimes, your income may not match up with the amount you wish to borrow. In such cases, you can opt for a co-applicant to increase your chances of getting a bigger loan.
Another option that may help is a home loan with an extended repayment period. With this type of loan, you can extend your repayment period up to the age of 67, giving you more time to pay off your loan.

However, it’s important to note that you may need to pay an additional percentage or two of the loan amount as a loan guarantee provided by the India Mortgage Guarantee Corporation (IMGC). Before deciding on this option, it’s always a good idea to seek advice from experts at Refer Loan.

For example, if you want to buy a house for 50 lakhs, but your income only allows you to repay 10 lakhs per year, you can opt for a home loan with an extended repayment period. With this option, you can spread your payments over a longer period of time, which can help reduce the burden on your finances. However, be aware that you may need to pay a higher interest rate to compensate for the longer repayment period.

Delayed Start EMI Loans:

These home loans come with a moratorium period during which there is no EMI charged. A preset date for EMI start is inbuilt into the home loan agreement. The moratorium period could last anywhere between 36-60 months during which only a pre-EMI is paid by the borrower.
Once the moratorium comes to an end, the EMI’s not only start but increase over the period of time to compensate for the EMI break/holiday period. This option proves useful for individuals who are establishing themselves in their career but are sure of increased income after a certain period of time.

However, an individual needs to be sure of their income going up during the period of enhanced EMI payment. As a precautionary measure, this kind of loan is lent only to salaried and working professionals.

Example: Rajat is a software engineer and he has just started working. He wants to buy a house but his current salary is not enough to bear the EMI. He applies for a delayed start EMI loan where the EMI starts after a moratorium period of 48 months. During this time, he will only pay a pre-EMI. After 48 months, his EMI will start, and it will increase gradually to compensate for the break in EMI payment. This option is suitable for Rajat as he is sure of his income increasing over time and can easily manage the increased EMI payment in the future.

Lump Sum Payments for Properties Under Construction:

If you’re buying a property that’s still under construction, you’ll make payments to the builder according to a schedule. During this time, you’ll only be required to make interest payments to the lender, which are known as Pre-EMIs. However, you have the option to start making full EMI payments for the amount you’ve already disbursed to the builder.
These payments will first go towards paying off interest and then towards the principal. If you choose this option, you’ll be paying off some of your loan before you even take possession of the house, which can lighten your loan burden in the long run.

However, it’s important to keep in mind that there are no tax benefits for any payments made during the pre-construction period, except for the interest paid, which can be claimed as a deduction over five years after you take possession of your property.

For example, if you are taking a home loan of ₹50 Lakhs for a new under-construction property, the disbursements will be made to the builder as per the construction schedule. During this time, you’ll only be required to make interest payments to the lender (pre-EMI), which can be a considerable amount.

However, if you opt for lump sum payments, you can start making normal EMI payments for the disbursed amount, which would be adjusted towards interest first and then towards the principal. By doing this, some of the principal would be repaid even before you get possession of the house, reducing your loan burden in the later years.

For instance, if the construction period is 2 years and the pre-EMI during this time is ₹30,000 per month, making a lump sum payment of ₹7.2 Lakhs (₹30,000 * 24 months) would reduce your overall loan burden and help you save on interest. Keep in mind, however, that you’ll not be eligible for any tax benefits for payments made during the pre-construction period, except for the interest paid which can be claimed in 5 installments after property possession.

Home Loans with EMI-Free Months:

Some banks offer a special type of home loan called “Home Loan with EMI Waiver.” In this loan, after a certain number of regular EMI payments, a fixed number of EMIs are waived off. This is a way for the bank to reward the borrower for being consistently responsible with their payments.

For instance, Axis Bank has a “Fast Forward Home Loan” which waives off 12 EMIs throughout the loan tenure, with 6 EMIs waived after 10 years from the first disbursement and another 6 waived after 15 years. However, there are strict conditions related to repayments.

Home Loan Linked to a Savings Account:

This type of home loan is connected to a linked savings account where you can keep any extra funds you have. The money in the savings account is taken into consideration when calculating the outstanding balance for your home loan, so you’ll only be charged interest on the outstanding amount minus the funds in your savings account. This arrangement can certainly lower your interest burden.

However, it’s important to note that savings accounts don’t earn interest. You may be better off investing that money elsewhere or using it to pay off your home loan early. But, if you run a business that requires you to maintain a savings account, this type of home loan might be a useful option.
An example of a Savings Bank Linked Home Loan in India is HDFC Bank’s Home Loan linked to a Savings Account. This loan option allows the borrower to park their savings in a linked savings account and reduces the interest burden on their home loan.

In conclusion, when considering a home loan, it is important to understand that different lenders may offer different repayment options. It is crucial to research the available options and consider factors such as the processing fee, interest rates, and any other additional expenses charged by the lender.

Additionally, Refer Loan team can help in finding a customized home loan repayment plan that fits your needs. The right loan can not only help in reducing the interest burden but also make home ownership a more achievable goal.

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