The rise in real estate prices accompanied by the growing demand for the same has led to multiple measures been taken to meet with the situation. One such endeavour is the recently stated RBI update of repo rate-linked home loan interest rates. However, there have been rising cases of defaults on such housing advances.
According to data from December 2018, there has been a rise of 3% in home loan defaulters. It is a result of missed out EMI payments due to no pre planning of their repayment structure. For customers to be able to clear their EMI regularly, it is imperative that they calculate it beforehand along with a detailed financial layout of their future expenditure. Any potential borrower can use an online home loan repayment calculator to check the exact EMI amount that they are expected to pay each month.
Home loan repayment options
Generally, financial institutions offer a few additional features to aid in repayment. These featured options on repayment of home loan are discussed underneath.
- Step-up repayment: This option of repayment is a very effective one, especially for individuals who are employed in some organisation. Employees working with an organisation are often liable to come upon a substantial amount in the form of hikes. Among the numerous home loan repayment options to choose from, this selection allows a gradual increase of EMI amount over time. Individuals working in a company expecting a raise in salary over the upcoming years can opt for this method. With an increase in EMI over months, the line of credit is cleared in a shorter tenor, and therefore, the borrower effectively pays a lower interest amount.
- Prepayment and foreclosure: This is one of the most effective of home loan repayment options. Any individual who has borrowed from an NBFC or a financial institution should be on the lookout for opportunities of prepayment and foreclosure. In this case, borrowers pay a large sum of money and either clear a portion or whole of their outstanding loan amount, depending on their financial situation. In case they clear the whole amount before the completion of the tenor, it is known as a foreclosure. When a customer pays a portion of their loan, it is called part-prepayment. Customers availing part prepayment facility should use a home loan repayment calculator and calculate the exact EMI that they remain to be cleared.
- EMI delay: Generally financial institutions and NBFCs are lenient about the delay of a few months in EMI repayment. Effectively, they allow customers to take a few months post-disbursal of the loan amount before borrowers need to start paying their instalments. Generally known as the moratorium period, this extends up to 3 months prior to the start of the home loan EMI.
- Balance transfer: There are multiple reasons why borrowers should be choosing a home loan balance transfer for their existing loan account. This facility allows customers to transfer their current line of credit to another financial institution to avail attractive rates of interest among other such lucrative features.
Borrowers should check all features and interest rates carefully before going for this option. Effectively, balance transfer facility with its reduction in interest rates can amount to huge savings for borrowers.
Additionally, features like top-up loans can also be added in case a borrower transfers their existing loan account balance to another NBFC.
It is essential that individuals consider all options of repayment of their loan and plan even before they apply for a home loan. It ensures that they have enough financial backup to cope with any emergency. As for the application to avail such financial assistance, financial institutions make them convenient and accessible.
Individuals who plan and use a home loan repayment calculator can easily manage their repayment in a timely fashion. They must be cautious while choosing their repayment option and select them based on their income and personal spending habits.