Which home loan repayment option suits you the best?
Financial institutions and banks offer a number of repayment schemes to suit the needs of different types of prospective borrowers. This is primarily done with an intention to attract more borrowers and fence sitters. Some of such innovative repayment schemes are given below:
Step-up Option:- This suits the “younger generation and new to employment”the most. In this option, the EMI is lower in the initial stages and increases at predetermined intervals. It substantially increases the loan amount eligibility, and the lower EMI matches initial repaying capacity. Assuming a steady growth in the earnings of the borrower, the EMI also increases at prefixed intervals in this scheme.
Step Down Option:- It is an absolute reverse of the above and suits borrowers who are likely to retire in near future. The EMI is higher in the initial stages and it reduces at prefixed intervals. This scheme intends to reduce the post retirement outgo, so that the borrower does not feel the pinch of higher EMI, thus lowering the burden on retired borrowers.
Telescopic Repayment:- It suits the younger generation who have just started their careers when the loan amount for which they are eligible is less. Under this scheme they can avail loan of higher amount by increasing the tenure up to 30 (Thirty) years. The EMI is less and the borrower has the option to pre-pay the loan when surplus fund is available.
Tranche Based Option:- Buyers of under construction property can opt for it. Generally when there is partial disbursement of loan amount, a pre-EMI interest is charged till the entire loan amount is disbursed and regular EMI starts. Under this scheme the borrower has the option to pay EMI separately for each tranche of loan disbursed and the total loan repayment period is reduced.
Pre-EMI:- To some extent it is the reverse of the above, but is applicable for under construction properties only. The loan amount is disbursed in parts as the construction progresses and the borrower is charged simple interest called pre-EMI. It does not include the principal component. After the full loan amount is disbursed, payment of regular EMI commences.
Accelerated Repayment:- It has the flexibility of increase in EMI amount which is otherwise fixed. It suits the borrower as the EMI amount increases whenever there is an increment in salary. The borrower can also make periodic payment of additional amount, over and above the regular EMI, when surplus fund is available. In this way the repayment tenure and interest outgo can be reduced.
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This article is contributed by -IndianPropertyLawyers, simplifying property
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