When planning to take a home loan, many aspects need to be considered. For example, you’ll need to look at the interest rates, processing fees, documents required and a suitable tenure. But what about the repayment methods? Did you know that you can also choose the home repayment options as well?
Apart from the basic repayment option of paying the same EMI throughout the tenure, you can avail few other repayment options on a home loan. Read on to learn more.
- Extension of repayment tenure
Many lenders provide a home loan where the borrower can enhance the loan eligibility amount and extend the repayment period. Under such repayment options, middle-aged salaried applicants can extend their repayment period until they reach the age of 65. Similarly, young salaried applicants can avail a home loan with a repayment tenure until 67 years of age. However, in such a loan, the lender charges a 1-2% fee of the total loan amount as a loan guarantee.
- Payment of lump sum for under-construction property
Such a repayment option is available for under-construction property and is called a tranche based repayment option. When you take a home loan for an under-construction property, you are required to opt for pre-EMI and pay only the interest component until the final disbursement. However, under this repayment method, you can pay the total EMI for each loan instalment you receive. The EMI you pay would be first adjusted towards the interest and the balance would go towards the principal component.
By opting for this repayment method, you can reduce the total outstanding balance by the time the property is completed. However, there is no tax benefit on the principal component of the home loan repayment for under-construction property.
- Increasing EMI
Some lenders also call it a step-up option. In this repayment option, the home loan EMI is not fixed for the entire tenure but increases proportionally according to your income. In this option, you can avail a higher loan amount with low EMI in the initial years. As your income increases, so does the EMI, reducing your interest outgo and helping you close the loan earlier. However, as this repayment option is based on your expected rise in income, the lender could monitor your career graph and income. Also, if there is a fall in your income in the future, it could be difficult to repay the loan.
- Decreasing EMI
In this option, the EMI is higher in the initial years and consequently decreases over the tenure. This repayment option is best for borrowers who wish to have a lower loan burden in the post-retirement period. It can also be opted by elderly borrowers who are likely to retire in 5-10 years.
In a Nutshell
While the basic repayment option is always available, it could be useful to explore these options in case you are facing any financial situation. However, ensure to do the necessary math to know the total interest burden of the entire tenure. It would be best to discuss the different options with your lender, assess your financial position, make a forecast of your future income and then decide accordingly.
