Ready Reckoner: Housing Loan Repayment Options..!


by Sanjeev Sinha
  
Housing financing companies (HFCs) or banks these days offer many customised payment options to suit your homeloan requirements.

While some of these options give flexibility in repaying your loan, others are linked to the various stages of your home construction.

Overall, these plans are a win-win for the lender and the borrower.

In fact, some of these plans increase the repayment capacity of the borrower with some tax benefits.

Different types of repayment plans

Here are the different types of repayment plans in the real estate market, which a borrower needs to analyse before making a decision, based on their requirement:

Step-Up Repayment Loan..!

In this plan, the repayment is directly linked to the borrower's monetary growth (growth in income). This helps the borrower avail higher loan compared to a normal housing loan.

“This scheme is beneficial for young professionals, as their income would increase with their progression in their career.Since people pay lower EMIs in initial years, they can adjust the loan as per their need and also enjoy the same tax benefit even if the EMI increases,“ says Mr. Jitendra P S Solanki, a SEBI-registered investment adviser and founder of JS Financial Advisors.

Step-Down Repayment Plan..!

This is exactly opposite to the above option.

Here, EMIs are higher in the initial years and decrease later. This plan is most suitable for people who borrow loan at an older age, that is, mostly senior citizens or / those nearing retirement.

Since the income capacity alters at later stage, the lower repayment helps in keeping finances within manageable limits.

Fixed & Flexible Instalment Plan..!

In a fixed-repayment plan, EMI will be fixed for a certain period after which it gets adjusted as per the market rate.

During this fixed tenure, the EMI is not affected by market conditions. It is beneficial for borrowers when interest rates are expected to rise. However, one needs to move cautiously as many lenders have a provision for increasing the fixed amount in their agreement.

In a flexible-loan instalment, EMIs are higher in the initial years, but decrease gradually in the later years of repayment. “This option can be good for parents who wish to buy houses for their children.

The home loan can be planned in such a manner that by the time they retire or are not in position to re pay the EMIs, the children will be in a position to fulfil the liability,“ Solanki says.

Tranche-Based Repayment Plan..!

Ideally, a borrower has to pay interest on the home-loan amount, based on the stage of property construction till the project is complete.

This type of repayment plan is offered by a few banks and lenders, which helps the borrower save interest.

The borrowers can fix an amount as per their capability, which they can pay in in stalments to the bank till the property is ready to occupy. The minimum amount payable is the interest on the total loan amount. Any amount over this fixed amount goes towards the principle.

This way the borrower saves on the tenure of the loan by repaying the loan faster. This option is most suitable when you buy a property under -construction.

Accelerated Repayment Plan..!

In this plan, borrowers can increase the EMI amount when they have surplus money or when the disposable income increases. Another option which is very popular is paying a lump sum amount towards the loan.

This helps in faster loan repayment & saves tax also.

Balloon Repayment Plan..!

This is similar to the step-up option, but in this option you could pay a very small amount in instalments in the beginning of the loan term. As the name suggests, in the later years of the loan term, the instalment amount also starts ballooning to a higher amount than the normal step-up option.

Although lenders may give borrowers various loan-repayment options, as a borrower, you have to do some due diligence to ensure that any chosen option does not go against your expectations.


“The most important thing is to check the clauses the lender has in the repayment plan you are opting for and how the lender has treated existing customers. Speaking to an existing customer is not a bad idea, as you are investing life-time savings into your dream house and borrowing credibility need to be kept good,“ Solanki says.
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