The central government's effort to bring transparency in the real estate sector along with the introduction of several governments aided housing schemes, have boosted the real estate sector in this country. In addition to it, when RBI recently reduced the repo rate to 4.40%, it encouraged aspiring home buyers to apply for home loans and go ahead with their residential property purchase. However, before applying for it, borrowers should know about home loan repayment options for easy repayment of their home loan.
Types of Repayment Options for a Home Loan
Equated Monthly Installments or EMI
As the name suggests, borrowers pay a fixed amount to their lenders every month as repayment. It includes both the EMI and principal of the entire loan amount and paid throughout the tenor of the loan until it is fully repaid.
EMI is calculated through the mathematical formula of EMI = [P x R x (1+R) ^N]/ [(1+R) ^N-1]. Here, 'P' stands for the loan amount or the principal, 'R' stands for the rate of interest applicable on loan, and 'N' stands for the number of instalments to be paid throughout the tenor. However, with manual calculations, there are chances of errors and to mitigate such errors borrowers can use a home loan emi calculator with prepayment available online. These calculators are handy and allow customers to calculate their EMIs within seconds. Additionally, these calculators also offer a detailed break-up of a home loan to provide borrowers with a better understanding.
Part-Prepayment
Apart from paying home loan EMIs regularly, borrowers can opt for a part-prepayment facility. In case they have lump sum funds available in hand, they can repay a significant portion of their entire debt at once. It reduces the principal amount as well as the EMIs. Part-prepayment can also reduce the tenor of a home loan if the borrowers opt for it.
However, lenders often have particular rules regarding part-prepayment like the amount should not be less than 3 EMIs, etc. it is one of the efficient home loan repayment options to choose for.
Foreclosure
Foreclosure means when borrowers repay their entire housing loan amount at once. In case a borrower has ample funds available to repay their home loan completely, they can opt for foreclosure. According to the RBI, there are no charges levied on a foreclosure.
However, before repaying high-value credits like home loans at once, borrowers should -
- Plan this prepayment early and allocate their funds accordingly.
- Check the available tax benefits.
- Evaluate other benefits of their funds compared to a foreclosure.
Once this foreclosure process is complete, borrowers should -
- Retrieve their original property documents form the lender and any other documents they may have submitted.
- Get an acknowledgement letter from their lender.
- Update their foreclosure details on the CIBIL database.
Balance Transfer
Balance transfer means transferring the unpaid amount of a home loan from one lender to another. It is one of the popular home loan repayment options. Here, the primary lender will receive the entire unpaid amount from the new lender that a borrower has opted for and the borrower will now pay his/her debt to the new lender. However, before considering a home loan balance transfer, borrowers must keep in mind the following things -
- They should compare the interest rates first to check if home loan balance transfer can help save them money or not. This analysis essential to check if there is any cost-benefit or not.
- Check the service history of the new lender.
- Consider the additional costs if there are any and processing fees.
Home loans are typically a long term and high-value credit and lenders offer several home loan repayment options to the borrowers for easy payment. Such offers generally are customized to suit a borrower's financial requirement.
