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While prepaying the loan is obviously the primary target, one should wisely pick the EMI paying option when selecting the lender.

The Covid-19 pandemic has hit finances of so many people but it has been worst for servicemen who lost their jobs or suffered a pay-cut. Most people belonging to this category have either a home or car loan to pay off in the form of equated monthly instalments (EMIs). A sudden financial turmoil post pandemic was bound to disturb the predetermined loan repayment pattern for the victims of pay-cuts and unemployment.

Home loan is a long term commitment ranging anywhere between 10 to 30 years. Now, the borrower’s financial situation may witness various kinds of upheaval during this period. Therefore, one must look for as much flexibility as possible when entering into any long term commitment like this one. While prepaying the loan is obviously the primary target, one should wisely pick the EMI paying option when selecting the lender.

Ways to pay home loan EMIs?

The modalities of EMI repayment differ basis several factors and it only makes sense to explore all the options at your disposal before signing any dotted line. The convention EMI option allows you to pay a fixed sum of money per month to the lender as part of your loan repayment plan. But there are things you may not be enlightened with just yet.

Delayed start of EMI

If you choose the Flexipay loan, your EMI repayment will be initiated at a later date. Here, the borrower is given the option to go for a moratorium period of nearly 36 to 60 months during which the borrower isn’t liable to pay any EMI. However, the pre-EMI interest has to still be paid.

When the moratorium ends, your EMI cycle will begin and the repayment amount eventually increases in time. All of this is predecided in the loan agreement paper and the borrower is well aware of the upcoming changes.

This kind of loan is available only to salary and working professionals aged between 21- 45 years.

Loan linked to bank account

There are many people who decide to open a current account with the bank while getting a home loan sanctioned. The amount kept in this current account will impact the loan in a way that it can lower the interest charged. The interest liability reduces vis-a-vis surplus funds available in the current account.

Home loan interest is calculated basis the outstanding balance of the loan minus the balance in the borrower’s current account. Besides, one is free to withdraw or deposit money in the current account at their convenience.

Loan with increasing EMIs

It’s common to opt for plans where the EMI increases exponentially after the initial few years of repayment. With increased EMIs, the pace of repayments also increase. This, in turn, reduces the interest burden as there is a strong chance for the loan to finish earlier than expected.

In such loans, the borrower can choose to pay lower EMIs against a relatively higher loan in the initial years. The concept of increasing EMIs is directly linked to an expected increase in your income. Now, this is a sheer probability. Hence, if someone isn’t able to get the math right, the repayment may become difficult and rather burdensome.

Loan with decreasing EMIs

Exact opposite of the above, here the loan is structured in decreasing order of EMI value. This means, the EMI is higher in the initial years and tend to decrease as the loan tenor progresses further. A higher EMI in the beginning obviously means more interest outgo in the initial years. This kind of EMI repayment strategy works best for those who are capable and in hurry to shed off the debts as early as possible. Their primary goal is loan repayment and thus a good option to go forward with.

EMI waiver in home loan

Lenders mostly have a list of terms and conditions when it comes to offering home loans. It’s a long commitment/risk for both parties and nobody wants to lose. If borrowers are regular in paying timely EMIs, certain lenders offer an incentive as encouragement and boost. Many lenders waive off a particular number of EMIs if the rest have been paid regularly. If you’re looking for a home loan, keep a tab on such offers.

No matter how flexible these EMI repayment options may look, your ultimate goal should always be to pay off the home loan as early as possible. Loan prepayment is what you should always aim for. This will not only soften the technical aspects of the loan (interest rate or EMI value) but will always keep you on track. Loan defaults are dangerous and vicious.