The amount borrowed for a home loan is generally on the higher side as compared to any other type of loan. Still, owning a house of their own is a dream for many, which is why home loans enjoy considerable popularity in the debt market. Today, there is no dearth of home-loan providers. These lenders often entice customers with their attractive interest rates and exclusive home-loan offers. While availing a home loan is no longer a difficult task, repayment of such huge amount could sometimes become burdensome. Therefore, at the time of applying for a home loan, it is important to explore all the best possible home loan repayment options.
Some home loan providers offer an EMI holiday at the start of your home loan repayment. This EMI holiday is nothing but a delay in the deduction of EMI from your bank account by a few months after the disbursal of the home loan. This 3-EMI allows a borrower to start the repayment procedure after 3 months of availing the home loan. An EMI holiday offers considerable relief as during the initial stage of applying for a home loan when the borrower has to clear expenses related to registration fees and stamp duty on the new home. This delay in EMI payment offers relief to the borrower to get his/her finances in order and plan the repayments of future EMIs in an efficient way.
A Step-Up Repayment option involves an eventual increase in the EMI amount as the loan tenure progresses. This means that during the initial years of repaying your home loan, you will have to pay less EMI, and the amount will increase as the loan tenure progresses. The Step-Up Repayment option is suitable for borrowers who have recently started their career. This is because during the start of their career they might not have enough funds to pay huge EMIs. However, as their career progress and their financial prospects start to improve, they can easily afford an increase in their EMIs.
A Step-Down Repayment is the opposite of a Step-Up Repayment option. Here, the borrower sees an eventual decrease in the EMI amount as the loan tenure progresses. This means that during the initial years of the repayment of your home loan, you will have to pay a higher EMI, and the amount will eventually decrease as the loan tenure progress. The Step-Down Loan Repayment option is suitable for borrowers who are nearing their retirement. It would be easy to pay the high EMIs with a steady source of monthly income. The eventual decrease in the EMI amount then considerably reduces the financial burden as the retirement approaches.
A Lump-sum Repayment is an ideal option when the borrower wants to repay the entire loan amount immediately, even before the end of the loan tenure. In case of a home loan on under construction projects, the total loan amount is not disbursed all at once but is instead granted in installments as the home-construction work progresses. In this case, the borrower is only required to pay interest on the loan amount drawn till the final installment has been disbursed. It is only after the disbursal of the final installment that the EMIs are payable by the borrower. However, if the borrower wishes to repay the principal amount immediately, he/she can choose to start paying the EMIs on the disbursed cumulative amount. The lump-sum payment amount would be first adjusted for the interest while the balance amount will go to principal repayment.
The Balloon Repayment option works on the same line of the lump-sum repayment option. However, in this case, the borrower makes a large payment (around one-third of the loan amount) as the last installment. A balloon loan is ideally taken for a shorter term, where the final balloon payments tend to be almost twice the size of the initial installments. In this loan repayment option, a small portion of the home loan’s principal balance gets amortized over time.
Refinancing of a home loan involves repaying the outstanding balance of the existing home loan by availing a new loan. This new loan generally comes with lesser interest rates and better repayment options, so that the borrower’s repayment capacity is not hampered. Refinancing your existing home loan with a new loan, which offers affordable interest rates, may help lower your EMIs. Also, a borrower can negotiate a shorter tenure on the new loan for refinancing. Transferring your home loan balance to a new provider may also help boost your credit score.
In case you across any surplus cash, you can use it to pre-pay your home loan EMI. Prepayment allows you to repay your loan at the earliest. Prepayment can be done either for part or for the entire outstanding loan balance. Prepayment of loan helps significantly lower the EMI on your home loan. However, certain home loan providers levy a penalty for pre-payment. Make sure you take these penalty charges into consideration when thinking of pre-paying your home loan.
Deciding on a loan repayment option is extremely crucial before applying for a home loan. Make sure you weigh all the pros and cons of the above-mentioned repayment options and choose the one that is in alignment with your future budgeting goals. To fulfill the financial requirements for buying your dream home, apply for the Bajaj Finserv Home Loan today! For more details, visit Finserv Markets and explore your home loan repayment options.
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