Home loan is one of the important sources of finance for your dream home or apartment. Every housing finance companies or banks have customized repayment options to suit every individual’s requirement and repaying capacity with some tax benefits. You need to choose a repayment option that suits you best. Today financing companies and banks compete each other with special repayment options. The scheme differs depending or considering your monthly income, Job stability, your age, other debts and financial commitments. When choosing a repayment option you need to ensure that your home loan is affordable for you and you are comfortable to repay them. Here are some repayment options for you to repay your home loan.
Home Loan repayment options
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Banks follow different criteria to calculate loan eligibility and your repayment options. Repayment options or schemes differ from person to person depending on their income, loan amount, capacity to repay etc. Following are some of repayment options available for your home loan.
- Step Up Repayment Facility (SURF): When comparing Step Up Repayment Facility (SURF) with normal housing loan, you can get larger or higher amount of loan and initially EMI would be lesser and gradually increase over fixed intervals. The objective of step-up repayment is to provide the borrower with a repayment schedule, which is linked to expected growth in income.
- Flexible Loan Installment Plan (FLIP): This repayment option offers a customized solution. In cases when a borrower is nearing retirement, the loan is structured in such a way that the EMI is higher during the initial years and subsequently decreases in the latter part proportionate to the reduced income of the customer. This scheme is advisable as applicants will get a higher loan amount and end up paying lesser interest compared to regular schemes.
- Home Saver account: The regular home loan is a non- transactional account. In the Home Saver account, the home loan account is made transactional by connecting it to a Current Account. It works like an overdraft facility and the borrower can park his surplus savings in the Home Saver account and can withdraw the surplus as per his needs. Till the surplus (other than EMI) amount is lying in the account, it will earn same interest as that of loan. Such interest earned is accounted as principal loan amount repaid, on daily product basis. In this scheme, one can save a lot of interest payable on home loan as tenure reduces considerably.
- Accelerated Repayment Scheme: In this scheme, loan gets repaid faster resulting in a lot of savings in interest payment and the long-term debt closes much earlier. This scheme is good for salaried class borrowers, as whenever they get an increment, or disposable income is increased, they can use it for increasing the EMI amount. Whenever you have lump sum funds use it for part prepayment. Under this scheme, the borrower can pay lump sum amounts, which will be apportioned to the principal loan outstanding. In this scheme, the long-term debt closes much earlier.
- SmartFix Home Loans: ‘SmartFix’ Home Loans combine the safety of fixed rates plus the advantages of floating rates. For the first 3 years the borrower gets a fixed interest rate and the fourth year onwards, the loan gets switched to the prevailing floating interest rate. This three-year phase is known as lock period. When the lock period is over the remaining loan amount will be covered by the floating rate. If the rate of interest gets lowered the borrower gets an extra privilege of lower floating rate.
- Tranche Based EMI: Customers purchasing an under construction property, need to pay interest (on the loan amount drawn based on level of construction) till the property is ready. Under this system, customers can fix the installments they wish to pay till the property is ready. The customer benefits by starting EMI and hence repays the loan faster. The minimum amount payable is the interest on the loan amount drawn. Anything over and above the interest paid by the customer goes towards principal repayment.
These days, banks and HFCs (Home Finance Companies) offer a number of repayment options. If you are a professional seeking home loan and having good employment, no bank or HFC would like to lose you. It may be noted that banks and HFCs will try to lure you by offering many special schemes, saying that the scheme is custom-made for you, and will try to push you to seek a higher loan amount. This is because there is surplus credit available and fierce competition amongst banks. You need to choose the repayment option that suits best because some schemes for repayment of home loan looks attractive such as SURF scheme where initial EMI are less. But it is beneficial to the lender and not you, as in the first two years, the lender will be collecting only interest. As a result, the total interest payable over 15 years will be 10 per cent more than in the normal scheme.
If you are opting for the floating rate loan, be sure to check whether the rates of your chosen lender had floated down over the last couple of years. Never haste the shopping process. Cost of your loan largely depends on how you negotiate. In case, loan eligibility based on your income is an issue, you should talk to different banks to find out which bank can provide you best deal. Apart from rate of interest, what points you should take into account while choosing the best financer are processing fee, legal charges, pre-payment charges, valuation fees, and other hidden costs. Before choosing a repayment option, you must analyze whether the special repayment option offered is beneficial for you.
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