Buying property is no small feat, especially if you are a first-time homebuyer. For most Indians, being a homeowner is a mark of financial stability and a statement of security for you and your loved ones. It is in this continued quest for security that homeowners who have availed of a home loan also pre-plan their home loan repayment. Planning your repayment process is an attempt to insulate your finances from sudden fund crunches and upheavals by setting aside the pre-fixed EMI amount you need to repay your home loan.

Repayment planning is a healthy habit that all borrowers should practice, not just to minimise the possibility of delaying or defaulting, but also to assure the lender of their intent to repay the amount. Having a well-research repayment plan boosts your home loan eligibility, enabling you to get a higher loan sanction with a more flexible repayment tenor. Those vying for competitive lending terms should do their part and present a tentative repayment plan to their lender at the time of their home loan application.

What often escapes the borrowers’ attention are the numerous repayment options available to help them close the cost of borrowing a home loan efficiently. Borrowers should be aware of the modes of repayment before applying for a home loan so they can accommodate these plans in their financial planning. Using a home loan prepayment calculator can help in this matter.

In this article, we explore the repayment options lenders generally extend to eligible borrowers and how best to make timely repayment. 

What are Your Repayment Options? 

Three important repayment options are available to home loan borrowers. Here are the brief introductions to all three:

1. EMI Payments: Easily the most popular repayment plan, the EMI payment plan is easy to follow and commit to. Equated Monthly Instalments (EMI) are predetermined instalments you make every month, directly reducing your outstanding loan balance.

Your EMI amount is composed of your home loan principal and home loan interest in parts, depending on where you stand in your repayment tenor. You can decide the size of your EMI payable based on your monthly obligations and choose a longer or a shorter repayment tenor.

• Part-Prepayment: The part-prepayment method lets you pay portions of your home loan repayment amount above your regular EMIs, additionally bringing down your home loan balance – and thereby, the total home loan interest outgo. It can be a particularly attractive solution for individual borrowers with floating interest rate home loans, as there is no fee on making part-prepayments on their home loans. 

• Home Loan Foreclosure: When you can pay the remaining home loan balance through a single lumpsum payment, you effectively foreclose your home loan account. Borrowers can save substantially on their EMI and interest outgo if they avail of this option, should they have the required funds handy. 

There are other repayment options, such as delaying EMI payments, step-down repayment plans, balloon payments etc., but ensure that you understand the payment agreement and the financial repercussions before you proceed. 

Benefits of Part-Prepayment and Foreclosure 

Those who want to consider alternative repayment plans, aside from the regular EMI payments, stand to gain considerably in terms of their total cost of borrowing. Here’s how:

1. Higher Interest Savings: Many borrowers sign-up for a longer repayment tenor, often spanning up to 30 years, but many don’t necessarily need that long to repay the borrowed sum with interest. If you prepay or foreclose the home loan prematurely, consider doing so, as you reduce the total interest payable.
2. Bigger Repayment Capacity: As you prepay or foreclose your loan account – you pay off your home loan balance ahead of time, reinstating your repayment capacity in full. Having a bigger repayment capacity allows you to explore other loan and investment options in line with your financial goals and aspirations. 

Home loan borrowers can use a plethora of online tools and calculators to calculate their potential savings before making a part-prepayment or foreclosing their loan. One should bear other factors in mind, such as current liquidity and timing, before choosing either repayment option.

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