Wondering how home loan repayment works? Read on.

As a home buyer, you know how housing loans have benefits manifold. Whether you want to purchase a property, construct one, buy a plot, or extend your existing home, housing finance can help.

However, equally important is making timely EMI payments and closing the loan on time. So, here’s a guide to home finance repayment.

How repayment of home loan works

After you apply for a loan, you start repayment in the form of Equated Monthly Instalments (EMIs). An EMI is a sum you pay back to the lender monthly. The monthly instalment comprises two components- the principal amount and interest applicable divided monthly across the loan tenure you choose.

Here, an extended loan tenure translates into smaller EMIs. However, the longer the loan term, the higher your interest payable. Hence, it’s important to consider your monthly repayment capacity while applying for a loan.

For comfortably repaying the home loan, here are a few repayment options available.

Down payment

A down payment is an amount you pay upfront when getting a housing loan. By paying a larger down payment, you can reduce the repayment amount significantly. This way, you considerably bring down your EMIs as well. Since making a large down payment requires financial stability, lenders may perceive you as a low-risk borrower. Hence, you may even get more attractive interest rates.

Additional Read: Dos and Don’ts for a Home Loan Prepayment    

Standard EMI payments

The most common EMI plan allows you to pay the same EMI amount throughout your loan tenure. Hence, this is a convenient repayment option if you have a steady income. Moreover, you can use a home loan EMI calculator to help you plan your repayment by getting a clear idea of your potential EMIs and interest costs.

Flexible EMI repayments

In this EMI option, lenders allow you to pay a lower EMI at the beginning of your loan term and a higher EMI at the later stages. Hence, a step-up EMI plan is suitable for you if you expect your income to rise at regular intervals. Along with helping you manage your income flow effectively, this option also increases your loan eligibility as you pay as per your affordability.

Loan prepayment options

You also have the option to repay your loan partly through loan prepayment. With this, you essentially make partial loan repayments with incentives or bonuses you receive at work or any extra funds to lower your overall principal amount. Additionally, check for the part-prepayment charges with your lender beforehand.

Besides, in your initial years of repayment, the interest component repaid is higher as opposed to the latter years of repayment when the principal component is higher. By prepaying a sizeable amount, you save significantly on your repayment costs.

Additional Read: Check Out How to Withdraw PF for Home Loan Prepayment in India

Over to you

After understanding how home loan repayment works, it’s important to look for a lender with flexible repayment facilities. With Tata Capital, you can avail of a loan that works for you. Enjoy easy-to-meet eligibility criteria, and custom EMI plans with us. Visit our site to explore our EMI plans today!

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