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What are the various repayment options on my Home Loan?

When you take a home loan you are getting into a loan tenure that can range from anywhere between 5-20 years. Apart from the regular EMI options, banks offer variations in repayment options that you can make best use of depending upon your financial situation. Here is a list of some options you can choose from:

A Step-up Repayment Facility (SURF)

This plan can benefit those who have started their careers and have a promising future ahead. EMIs under this facility are scheduled in a manner to increase as the borrower progresses in his career and gets a salary hike as a result.

Advantages:

  • The customer has an affordable EMI in his initial years
  • Can be eligible for a higher EMI

Disadvantages:

  • Floating rate loans under such schemes work out to be costlier as in the initial years there is a higher payout towards the interest rate component of the loan

Step-down Repayment Facility or Flexible Loan Installment Plans (FLIP)

The repayment schedule in such loans is worked out in a manner that the EMI is higher in the initial years of the tenure and decreases during the latter half. This can be an option for those who expect their income to decrease in the latter half of the loan tenure.

Advantages:

  • People approaching retirement can avail of such a loan
  • Children can combine their income with a working parent to avail of a higher loan

Disadvantages:

  • Can be availed of by only those who fall under a specific category (as mentioned above)
  • The tax benefits will favor the retired person more and thus a youngster applying for a loan with his parent will not get as many tax advantages

Tranche based EMI

This facility can be availed by those who are purchasing a property under construction. The normal practice for such loans is that a borrower pays a pre-EMI or the interest for the amount disbursed till the construction is complete and the loan tenure begins. However, from the perspective of the borrower a pre-EMI can be a real disadvantage as he keeps on paying interest and his repayments never go into the principal amount. A tranche EMI makes more sense in such cases as the borrower can start paying EMI soon after the first disbursement of the amount. The borrower has the option of paying an EMI on the disbursed loan amount or the full loan amount.

Advantages:

  • The borrower can have considerable savings under pure interest payments that he makes
  • He can repay his loan faster

Disadvantages:

  • Such schemes are offered by a select few banks
  • Can seem complex to the customer. You must check the amortization schedule to check how much you are really saving

Accelerated Repayment Scheme

This repayment facility can be availed by the salaried class individuals wherein if the borrower feels that he can actually pay a higher EMI than his EMI as per schedule

Say, you have decided that you can pay an EMI of Rs. 15,000 in a month when you initially take the loan. Sometime later, and you get promoted with a good salary hike. You now think that you can pay a higher EMI of around Rs. 20,000. The easier option that people take is reducing their loan tenure, but their tax savings get hampered. You can therefore ask your bank if you can be offered the facility of increasing your EMI in a way that will help you close your loan ahead of your schedule by adjusting the extra amount towards principle.

Advantages:

  • Loan gets repaid faster
  • You can continue to maximize your tax benefits

Disadvantages:

  • The bank may levy a charge for such payments

Balloon Payment

This is a large payment made in a lump sum, usually made closer to the ending of the loan tenure. Availing such a facility may increase the eligibility of a borrower as he can state that such a payment schedule will coincide with the maturity of some other financial instrument he has invested in such as a LIC Policy or a National Savings Certificate.

Advantages:

  • Can increase your loan eligibility

Disadvantages:

  • Works out to be costlier because the interest outgo is higher in the initial years of the loan tenure