Choose Right Repayment Plans for Home Loan

Choosing right home loan is not just negotiating for lower interest rate, negotiating on processing fee or pre-payment fee. Every borrower should go beyond this basic check list and find out if any of the different flexible repayment options would suit his needs. Remember, even a single default could deface your credit report and disqualify you from getting loans in the future. Banks and financial institutes offers different repayment options or schemes that differ from person to person depending on their age, career or your stage in life, income, loan amount, capacity to repay etc.

Right Repayment option

The biggest advantage is that choosing the right repayment option would reduce your EMI load and will help you avoid defaulting of repayment. Banks follow different criteria to calculate loan eligibility and your repayment options. Following are some of repayment options available for your home loan.

• Step-up loans: A step-up loan is  a flexible repayment option that synchronizes with the growth pattern of borrower. This is best suited for someone who is on his or her first job which would increase as he gathers work experience, get an increment or bonus. It helps a borrower get a larger amount of loan as compared to a regular loan.

• Step-down loans: This is quite the opposite of a step-up loan. This repayment option suits best for borrower who is close to his or her retirement years. In this repayment option, the EMIs start on the higher side and gradually drop when nearing the retirement years or drop in line with the post-retirement income of the borrower.

• Accelerated Repayment: Here, the borrower is allowed to increase his EMIs whenever his income goes up. 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. Increasing your EMIs could help you preclude additional payment in the form of interest on the loan taken.

• Balloon loans: Just like a step-up loan, a borrower choosing the balloon loan repayment option would pay lower EMIs in the beginning years of the loan tenure. Balloon loans are ideal for people with good investment sense, and the ability to wisely manage and ration their spending. A balloon payment is a large, lump sum payment made either at specific intervals, or, more commonly, at the end of a long-term balloon loan. In this scheme or option, the borrower would be required to pay more than one-third of the loan amount during the last installments.

• Tranche Based EMI: The borrower can fix the installments they wish to pay till the property is ready. Those purchasing an under-construction property can opt for Tranche based EMI. You can fix the installments till the property is ready. The minimum amount payable is the interest on the loan amount drawn and anything over and above the interest paid by the borrower goes towards principal repayment.

• Flexible Loan: In this scheme, bank or lender offers a customized solution. In the initial years (up to the retirement of the elder applicant), banks keep EMIs high. This is suitable for joint purchase of property by parents and children.

There are several conditions under which a favorable treatment is available but often people miss out on them. You need to choose the repayment option that suits best because some schemes for repayment of home loan looks attractive such as low EMI or no processing fee etc. Choosing right repayment option helps you to avoid defaulting of repayment and offers flexible repayment options that reduce your EMI load.

Borrow money only after taking into consideration your income pattern, and your stage in life. Pick repayment option taking into consideration of your age, income, monthly expense and capacity to repay etc. Remember, even a single evasion could deface your credit report and disqualify you from getting loans in the future when you really need them.