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A housing loan or home loan is a big financial responsibility, and repayment of housing loans can take years if not decades. It is, therefore, essential to choose the right home loan repayment option that suits your financial needs and goals. In this home finance article, we will take a closer look at the 7 amazing housing loan repayment options available to homeowners:
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EMI-based Repayment
Equated Monthly Installment or EMI-based repayment is the most common and popular repayment option for housing loans. Under this option, the borrower pays a fixed amount of EMI every month, which comprises both principal and interest components. The home loan EMI amount is calculated based on the housing loan interest rate, the loan amount, and the loan tenure. This option provides predictability and ease of planning as the borrower knows exactly how much he/she needs to pay every month.
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Step-up Repayment
This home loan repayment option is ideal for those who have a low income in the initial years of their career but expect a steady rise in income in the future. Under this option, the borrower pays a lower EMI in the initial years, which gradually increases with time as his/her income rises. This option provides flexibility and affordability in the initial years and allows the borrower to plan his/her finances better.
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Step-down Repayment
This home loan repayment option is ideal for those who have a high income in the initial years of their career but expect a decline in income in the future. Under this option, the borrower pays a higher EMI in the initial years, which gradually decreases with time as his/her income declines. This option helps the borrower save money on interest payments and allows him/her to plan his/her finances better.
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Balloon Repayment
This home loan repayment option is ideal for those who expect a lump sum inflow of money in the future, such as a bonus, inheritance, or sale of property. Under this option, the borrower pays a lower EMI in the initial years, followed by a higher EMI in the later years, which is much higher than the regular EMI. The lump sum inflow of money can be used to pay off the higher EMIs in later years. This option provides flexibility and allows the borrower to plan his/her finances better.
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Interest-only Repayment
This home loan repayment option is ideal for those who want to maximize their cash flow in the initial years of their loan tenure. Under this option, the borrower pays only the interest component of the EMI in the initial years, without any principal repayment. The principal repayment starts after a certain period, typically after 5 years. This option provides flexibility and allows the borrower to plan his/her finances better.
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Accelerated Repayment
This home loan repayment option is ideal for those who want to repay their housing loan faster and save money on interest payments. Under this option, the borrower pays an additional amount over and above the regular EMI every month, which goes towards principal repayment. This option helps the borrower save money on interest payments and allows him/her to repay the housing loan faster.
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Bullet Repayment
This home loan repayment is ideal for those who expect a lump sum inflow of money at a specific time in the future, such as a maturity payout from an investment. Under this option, the borrower pays regular EMIs for a certain period, followed by a lump sum payment at a specific time in the future, which covers the outstanding principal amount. This option provides flexibility and allows the borrower to plan his/her finances better.
Conclusion
To sum it up, the repayment of housing loans is a significant financial responsibility, and choosing the right repayment option is crucial to managing finances efficiently and meeting financial goals. The seven repayment options discussed above provide flexibility and affordability to borrowers and can be customized based on their financial needs. Borrowers must evaluate their financial goals, income, expenses, and cash flow before selecting a repayment option and ensure that they choose an affordable option that fits their budget. With the right repayment option, borrowers can efficiently manage their finances and repay their housing loans with ease.