Despite the financial setbacks suffered by many due to the pandemic, buying a home remains one of the top financial goals for countless Indians. Many take the help of home loans to finance their purchase after months of research, planning and budgeting.
However, at times many do not try to identify the type of home loan that would best meet their loan requirements and repayment capacity. In fact, home loan products may not just differ in terms of interest rate, benchmarking, processing charges, loan type, etc., but also the EMI options. Here are a few prominent home loan EMI options that you should be aware of to make informed decisions as per your repayment capacity.
Home loan EMIs with a moratorium
Many banks allow moratorium options to their home loan borrowers. This facility allows a delay in EMI payments typically up to five years wherein borrowers can pay only the interest until the EMIs begin. In such an option, the EMI amount is stepped up in the subsequent years after it starts. If you are looking for higher loan eligibility and expect an increase in your income in the future to meet the step-up EMI repayment requirement, you may go for this facility. The EMI moratorium facility can help you buy a home with a higher value than what your current finances permit.
EMI on home loans with overdraft option
Several banks in the market allow home loans with overdraft (OD) facilities. Under this option, the EMI obligation is the same as regular home loan products, but the borrowers get the liberty to park surplus funds in the bank account to save on the home loan interest to that extent for such period for which the fund remains in the account. The borrowers, thus, get the flexibility to reuse the extra funds parked in the account that helps them in maintaining a higher level of liquidity as well.
That being said, the extra funds parked in the account is not considered for tax deduction benefits under Section 80C of the I-T Act. Also, the interest rates on home loans with an OD facility are usually a little higher than regular home loan products. This option is useful to certain borrowers (like businesspersons) who often receive large funds for a short period to help them significantly cut down on the loan interest component.
Home loans with increasing EMI option
Some banks allow the facility of home loans with the increasing EMI option. In this type of product, the bank fixes a lower EMI during the initial few years of the loan. After a few years, the EMI increases gradually with an assumption that the borrower’s income will increase simultaneously to be able to repay the loan comfortably.
The increasing EMI home loan suits borrowers whose income is low or slightly inadequate to repay the EMI. The bank works on the assumption that the borrower’s income will increase in the coming years so that he/she will be able to comfortably repay a higher EMI in the future. You may apply for this loan facility if you have just started your career or have low income in the initial few years and expect job security during the entire loan period and a consistent income increase. Also, you could step up your EMIs on a regular home loan as well.
Options for under-construction properties
You can also choose between a pre-EMI and a full EMI option when buying an under-construction property. In a pre-EMI plan, you need to pay only the interest on the disbursed amount till you get possession of the property or at the end of the moratorium period (usually around 2-3 years), whichever earlier. On the other hand, in a full EMI option, you have to start paying the EMI immediately regardless of the bank disbursing the loan partially or completely. Under the full EMI option, the EMI is calculated on the entire loan amount and not on the amount disbursed by the bank until that time.
Apart from the above-mentioned EMI options, banks may also offer additional variations in home loan products; as such, you’ll be well-advised to inquire about different types of EMI options available with your preferred bank before finalising your lending decision.
The author is CEO, BankBazaar.com