Choosing the Right Repayment Schedule

Home loans are available at very low interest rates and buyers are faced with many options in this regard. When you gather all the necessary documents to apply for and get approved for a home loan, you are faced with a very important question. Which repayment plan to choose?

The traditional method of loan repayment is the good old “down payment schedule”. Here the borrower makes a down payment of around 20% of the total value of the house and receives the remaining 80% as a loan. Private lenders offer home loans at a higher interest rate, and nationalized banks are the best choice for everyone if they have the paperwork in order, as they have low interest rates on the principal amount offered as a loan. Here we come across various repayment schedules and schedules and are faced with the question of choosing the best schedule to make the repayment process easier and stress-free.

Firstly, the borrower must take into account the salary and incoming money each month. This is followed by the age of the borrower and co-applicant of the home loan. Younger applicants can choose according to their ability to repay, and older people or those approaching retirement age as borrowers face higher EMIs early in the repayment schedule. Another factor influencing the selection of an amortization plan is your dependent members and their income situation.

This method is for the immediate possession of housing. If the loan is taken for a property under construction, the banks do not offer the whole amount as a loan and here the borrower has to choose another type of repayment plan. In this case, home loans are not made for the entire principal amount. Only 10 to 15% of the money is released. The remainder must be paid as interest EMI until the project is completed. For such properties, the amortization schedule only includes the payment of interest and this does not include the principal amount. Only after the project is completed and the home is owned by the buyer will loan repayment for the principal amount and regular EMIs begin. Building savings plans and flexi plans for repayment are available here. The bank offers 10% of the total amount at the beginning and after each construction phase the next amount is released. With the flexi repayment plan, the borrower pays a larger amount at the beginning and the balance is paid in installments after the construction of each panel of the building. All of these are time bound plans as this depends on the completion of the construction of the property. This option is only good if the builder is known and has a history of completing projects on time. Otherwise, if the project is delayed, the borrower will have to bear interest on the amount, and also risk timely possession of the apartment.

One can also opt for an accelerated repayment plan, where the early months involve paying low EMIs, and the EMIs increase as the loan matures. This is beneficial when the borrower is assured of income growth and an assured increase in finances in later years.

Whatever repayment plan you choose, always remember that interest on loans accounts for a significant amount, and while this is the best option for buying a home, you must try to reduce the loan amount as much as possible. Many builders are also now offering homes with “zero EMIs” for properties under construction. And by booking your home in advance, you can save money that would have gone in interest. However, completing the project on time always comes with a risk factor.