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✓ Home Loan from ₹5 Lakhs To ₹5 Cr ✓ Multiple Lending Partners ✓ Attractive Interest Rates

What is Home Loan Repayment

Home loan repayment means paying back the loan amount to the lender (bank/NBFC) along with the applicable interest. A home loan is usually repaid over a period of 10 to 30 years in EMIs (Equated Monthly Instalments) as per the amortisation schedule decided by the lender.

Home Loan Repayment Charges

When you repay a home loan to a lender, you do not repay just the amount you actually borrowed (the principal amount), the bank/NBFC also charges an interest over and above the principal amount. While the rate of interest varies from lender to lender, it is also determined by numerous other factors such as your credit score, monthly income, other liabilities and more.

Example: Let’s say you take out a home loan of ₹10 Lakhs from a bank with an interest rate of 6.5% per annum for a tenure of 5 years. Now, you will have to pay a fraction of the principal amount, that is ₹10 Lakhs, and a fraction of the interest amount every month as per the amortisation schedule (EMI schedule) decided by the bank.The following table illustrates how much of the principal amount and the interest amount you will be paying to the bank every year:

Tenure

Principal Amount

Interest

Balance Amount

Year 1

₹1,68,296

₹45,138

₹8,31,702

Year 2

₹2,37,513

₹47,067

₹5,94,190

Year 3

₹2,53,418

₹31,162

₹3,40,772

Year 4

₹2,70,392

₹14,188

₹70,381

Year 5

₹70,381

₹764

₹0

 

Best Ways to Make Home Loan Repayment

While the bank/NBFC decides the repayment schedule (EMI schedule) for your home loan, in most cases, you are allowed to make some changes as per your financial needs and convenience. For example, you may choose to repay your entire loan much before the scheduled date or you may choose to pay a higher EMI at the beginning or towards the end of the loan tenure. Following are some of the home loan repayment options that you may consider:

  • EMI Holiday: 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. For example, a 3-month EMI holiday would allow a borrower to start the repayment procedure after 3 months of availing the loan. An EMI holiday offers considerable relief during the initial stage of the loan when the borrower has to clear expenses related to registration fees and stamp duty on the new home.

  • Step-Up Repayment: 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 careers. This is because during the start of their career they might not have enough funds to pay huge EMIs. However, as their careers progress and their financial prospects start to improve, they can easily afford a higher EMI.

  • Step-Down Repayment: Step-down repayment is just the opposite of step-up repayment. 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 housing loan, you will have to pay a higher EMI, and the amount will eventually decrease as the loan tenure progresses. 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 retirement approaches.

  • Lump-Sum Repayment: A lump-sum repayment is an ideal option when the borrower wants to repay the entire loan amount immediately, before the end of the loan tenure. In the case of a home loan on under-construction projects, the total loan amount is not disbursed all at once but is instead granted in instalments 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 instalment has been disbursed. It is only after the disbursal of the final instalment that the EMIs are payable by the borrower. However, if the borrower wishes to repay the principal amount immediately, they 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.

  • Balloon Repayment: Balloon repayment option works on the same lines as 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 instalment. 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 instalments. In this loan repayment option, a small portion of the home loan’s principal balance gets amortised over time.

  • Refinancing: 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 a lower house loan interest rate 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.

  • Prepayment: If you have surplus funds at any point of time during the loan tenure, you may choose to repay your home loan (either in part or in full) before the completion of the tenure. Prepayment of a home loan helps lower the EMI of the loan significantly. However, certain housing loan providers levy a penalty for prepayment. Make sure you take these penalty charges into consideration when thinking of pre-paying your home loan.

Home Loan Repayment vs Foreclosure

Home Loan Repayment

Home Loan Foreclosure

The loan amount (along with the applicable interest) is paid in EMIs as per the amortisation schedule decided by the lender.

The borrower repays the full outstanding loan amount in a single payment instead of paying in EMIs.

The loan is closed only after completion of the tenure of the loan.

The loan is closed much before the completion of the tenure.

Home Loan Repayment Options FAQs

✔️What is a Home Loan Repayment Schedule?

A home loan repayment schedule or amortisation schedule is the schedule of payment of EMIs to the lender. It stipulates the amount that you will be paying to the bank/NBFC every month till the maturity of the loan.

✔️What are the tax benefits of home loan repayment?

You can claim a tax deduction of up to ₹1.5 Lakhs on the principal repayment portion of the EMI under Section 80(C) of the Income Tax Act and a deduction of up to ₹ 2 Lakhs on the interest portion of the EMI under the Section 24(B) of the IT Act.

✔️How to withdraw PF for home loan repayment?

You can withdraw up to 90% of your PF corpus for home loan repayment. PF withdrawal is a simple process and can be completed either online or offline. To withdraw your PF online, you need to visit the official UAN website, log in with your credentials, navigate to the “Online Services” page and proceed with the withdrawal process. To withdraw your PF offline, you need to first download the withdrawal form from the EPFO website, fill in the details and submit it to your nearest EPFO office.

✔️What is a home loan provisional interest certificate?

A home loan provisional interest certificate is proof of payment of loan EMIs by the borrower. The certificate has the summary of all the EMIs paid by the borrower indicating the principal and the interest components of the EMI separately.

✔️What is a foreclosure month?

The foreclosure month is the month in the loan tenure in which you choose to repay the entire outstanding loan amount to the lender.

✔️What is the interest amount saved on a foreclosure?

The interest amount saved on foreclosure is the additional amount that you would have to pay to the lender as interest had you repaid your house loan online as per the regular amortisation schedule.