When it comes to repaying the home loan, every borrower’s capacity is different than others. Your personal responsibilities towards your family and yourself have a more significant impact on your repayment capacity. Therefore, you must consider different methods in order to avoid financial stress.
Here are six repayment methods that can help you plan home loan repayment.
Choosing the Right Home Loan
Repayment plans are not like ‘one-size fits all’. As you are the person who will be paying the loan, you should select the plan based on your preferences. You need to be a lot careful while selecting the tenure of home loan. Remember, as you reduce the tenure, the EMIs increase, but the total payable interest goes down. This does not mean, selecting the shortest tenure is the smart choice. A home loan EMIs shouldn’t be more than 43% of your income. Therefore, choose on the basis of your financial capacities.
Determining Your Loan Repayment Capacity
It is the difference between your total income and expenses. Once, you start evaluating your financial condition, you can roughly dedicate your income towards paying the EMIs. Moreover, you also need to consider your future expenses like a child’s education, vehicle purchase, etc. while deciding your repayment strategy.
Accelerated Repayment Plan
Here, you can increase the EMI amount when you get a bonus which increases your disposable income. In addition, you can pay a lump-sum amount to repay your loan. Both of these ways increase the pace of loan repayment and saves your taxes.
Balloon Payment
This method is mostly suggested for business people who have higher financial needs. By using this method, you would be able to repay around one-third of your home loan amount in the last few instalments. Basically, a balloon payment is nothing but a lump sum payment made to repay the home loan in some prearranged intervals say 5 yearly or at the last stages of a long-term loan.
Step-Up Repayment Loan
This is another fantastic method that can suit your repayment capacity when you have taken a home loan during the initial stages of your career. Step-up repayment method perfectly links your repaying capacities with the growth in income. Your income increases with your progress in your career. So by using the step-up method, you will be paying lower EMIs at the beginning, which will gradually increase with time. This method will enable you to the same tax benefit even if the EMIs increases. Besides, by using this home loan repayment method, you would be able to avail a higher loan compared to a conventional housing loan.
Step-Down Repayment Loan
This method is precisely the contrast of the method described above. Here, the home loan EMIs are higher in the initial years of tenure and decrease over time. Therefore, this method is suitable for people who have taken a home loan in older ages.
You can choose the combination of any of the above methods to repay your home loan.