This is How Your Loan Repayment Works!

Home loan repayment options you need to consider

Most people today rely on home loans to purchase their dream house since it’s almost impossible to come up with large amounts needed for houses all at once. You can apply for home loans through a bank or housing finance company and repay them in easy instalments. The lender checks your eligibility and sanctions the loan amount based on your monthly income and credit repayment behaviour using your credit score. The cardinal rule of any home loan is that it should be repaid on time. So it’s crucial that you weigh different home loan repayment options before applying for the loan and even during the process of loan repayment. Here are your repayment options with regards to home loans.

1. Take a loan at a younger age
   Most lenders provide loans to individuals who have completed a minimum period of three years of employment, which is typically after the age of 21 or 24 years. It’s always better to take on the loan when you are much younger. This is because lenders prefer to sanction loans to those who have several years of employment ahead of them, which makes it easy for them to repay the loan. You can in fact, repay your loan by your mid-forties and invest in a second property, if you so choose.
2. Begin paying loans while your house is being constructed
   In many cases, you can start home loan repayment after you have received possession of your property. Lenders generally ask you to only repay the interest portion of your loan while your home is under construction. The principal repayment can begin once you’ve gotten possession of the property. However, you do have the option to start and continue repaying the loan while your house is being constructed. Begin repaying EMIs early to become debt-free early.
3. Use your additional sources of income to pay off extra EMIs
   Whether you are a business owner or a salaried employee, you may have additional sources of income. Some companies provide significantly high year-end bonuses; an amount earned over and above your monthly income. You could have invested in the share market or mutual funds and earned profits on these investments. If you want to complete the home loan repayments process earlier than the stipulated tenure, you can use these additional sources of incomes and pay off an extra EMI each year. This amount can be transferred into your home loan account and can come in handy at times when you are between jobs or if you are unable to work for some time due to health reasons.
4. Increase the EMI amount with every passing year
   Another simple method for quick home loan repayment is increasing the payable EMI with every passing year. Most companies provide annual raises in income. You can utilise a part of this additional monthly income to increase the EMI amount every year. This way, you can balance and readjust your EMI with increasing income and become debt-free faster. A direct consequence of increasing the EMI amount annually is that your loan tenure will also reduce significantly.
5. Consider prepayment if you have a floating interest loan
   Lenders also provide the option of prepayment of the entire home loan before the stipulated tenure ends. But this facility is only available to borrowers repaying a floating interest home loan. While fixed interest rate borrowers are charged a penalty for prepayment, as per RBI regulations, there is no penalty for home loan borrowers who want to prepay a floating interest home loan. Prepayment of loan before the scheduled tenure is therefore one of the best home loan repayments option.
6. Time and limit EMIs so that you never default
   When you take on a home loan, you get the option of choosing a preferred EMI date. You should select a date which is close to your monthly salary, to ensure you have adequate funds to repay the loan on time. Also, ensure that you choose an EMI amount that suits your budget instead of one in which you have to compromise your lifestyle completely. Timing and limiting EMI are important factors worth consideration with regard to home loan repayment.
   Final word: Irrespective of the tenure or the EMI payable on your home loan, you must ensure that you never default on repaying the loan. Defaulting on EMI repayment can have several adverse effects including falling credit scores and penalties associated with late or incomplete home loan repayments. Moreover, lenders have the right to seize the property taken on loan and auction it off in order to recover their money. So you must always be cautious and ensure your repay your EMIs on time.