Housing Loan Repayment Options – What Works And What Doesn’t?

A number of ideal home loan repayment options currently exist in the market because they are profitable choices for both, the housing finance companies and several sections of borrowers too, who choose to pay through these schemes. This, however, is the second most important choice as a borrower. The first is the house loan interest rate, of course. So, what are the choices available?

* Step up repayment:

It makes sense for first time buyers, who are in their twenties, and can see potential growth curves in their future earnings. The most common example will be professionals like lawyers and doctors, who earn significantly more due to their considerable financial growth. It is important to keep your current finances and profession in mind, though. You should be able to afford the EMIs throughout the home loan tenure.

* Step down or flexible repayment:

This scheme is the opposite of the one above. This is a good option if you and your co-applicant are from different generations, like a father-son duo. Thus, you can repay most of your home loan before the older co-applicant has to retire. If both co-applicants are earning members, it is advisable to pay the maximum amount of interest before other major expenses begin in their lives. For example; before the son gets married or starts family planning, etc.

* Accelerated repayment:

This type of loan repayment is suitable for people, who want to pay higher EMIs as and when they can. By paying larger EMIs, they will successfully shrug off years from the home loan repayment tenure and also from the interest for all these years. This flexible plan is great for anyone, who plans to clear off a housing loan as quickly as possible. If you are always going to be the sole earner in family though, you may not be able to accelerate it due to continuous expenses for children, their education, wedding etc. Hence, you should give due consideration to all these factors when you think of increasing your EMIs.

* Tranche based repayment:

This type of repayment is applicable on properties where the house loan is distributed in instalments to the builder, for under construction properties. You can use this by paying minimal interest during the construction period. Alternatively, you can repay the major principal amount during this period and complete your repayment quickly. This option is flexible, but not always advisable. It should be chosen with great care.

Every repayment option offers its own set of benefits and limitations based on your current and future earnings. So, it makes sense to estimate them as accurately as possible before selecting the most suitable option for your home loan choice.