Repaying home loan? Choose one of these 5 EASY options

For many, home loans provide a substantial source of finance required for owning a dream home or apartment. Every individual buying a house has a different financial background and thus has different financial requirements. To cater to this individuality of home loan borrowers, housing finance companies and banks offer a variety of repayment options to suit an individual buyer's need.

Usually, the repayment options are customised according to a borrower's capacity to pay equal monthly installments (EMI) at different stages of her/his productive life. They are designed to simultaneously benefit both the borrower and the lender.

While deciding on which repayment plan to offer to a customer, lenders usually consider factors like monthly income, stability of employment, age of the customer and any other debts that are being serviced by her/him.

On the other hand, while choosing a repayment option for self, a borrower should keep in mind that the chosen scheme is affordable, increases her/his repayment capacity and gives her/him tax benefits. The aim of choosing a suitable repayment mode from a number of them is to make repayment of home loans easier.

Before selecting a repayment scheme borrower should take some time to understand its features; after all this is a long term financial decision which will have a considerable impact on an individual's finances.

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Various repayment plans on home loans are as follows:

1. Step-up repayment facility (SURF)

Step-up repayment facility is one in which the payment of installments are directly linked with the borrower's monetary development.

Best suited for those who are in the initial years of their employment, this plan allows the borrower to pay lower EMIs in the initial years and gradually increase them with each phase along with an increase in the borrower's earnings.

2. Flexible loan installment plan

Also referred to as a step-down repayment facility, the flexible loan installment plan is structured in such a way that the EMI amount decreases as the loan progresses. It means that in the initial years the repayment installments are high and they go on reducing in the later years.

It uses the concept of reducing balance to determine EMI amounts in different stages of repayment.

This repayment plan is best suited for those who are nearing retirement, as these individuals can pay high EMI amounts for some initial years when they are still employed, and then they need to lower the repayment amount in proportion to the decrease in their income.

This repayment plan can also be availed in those cases where children and parents buy property together. In these situations, usually the parents are nearing retirement and the children have just started earning.

Under this plan, the incomes of parent and children are combined to obtain a long term loan in which the installment amount declines after the retirement of the parent.

3. Tranche based EMI

This facility is for those who have availed loans for under construction property.

For an under construction property, borrowers have to pay interest on the loan amount drawn by them, till the entire loan amount is disbursed. But, with the tranche based EMI facility, borrowers decide the amount of EMIs they want to pay until the construction of property is complete.

The minimum amount is paid as interest on credit drawn whereas anything above interest goes towards the repayment of the principal amount.

This facility is very beneficial to the borrower as s/he starts paying off EMIs earlier and therefore can repay the loan sooner.

4. Accelerated repayment scheme

This home loan repayment scheme provides borrowers with the chance to repay the loan faster by increasing their EMI amounts whenever they have extra funds they would like to use towards home loan repayment.

In case of an increment or a hike in the borrower's disposable income or in case the borrower has lumpsum funds, s/he can use the increased amount for prepaying the loan.

In this way, the borrower repays the loan faster and saves on the interest element of the loan.

5. Balloon payment

Under this scheme, the borrower repays about one third of the loan amount during the last installments. Balloon payment involves a hefty, lumpsum payment of loan at some pre-determined intervals like five-yearly or so or at the concluding stages of a long term loan.

This scheme is advised only for those who have very high financial needs and should be avoided as the borrower pays more interest on it as compared to other loan schemes.

There are several ways by which home loan borrowers can repay their loans on favourable conditions but many a times people miss out on these opportunities as many do not understand the fine print of the repayment options.

Borrowers should always choose that repayment plan which lessens the burden of EMIs and helps them to pay off a loan easily.