Home Loan Repayment Options: EMI, Partial Prepayment, and Foreclosure

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Buying a property is no small feat, especially if you are a first-time home buyer. For most Indians, home ownership is a mark of financial stability and a declaration of security for you and your loved ones. It is in this continuous quest for security that homeowners who have benefited from a mortgage also pre-plan the repayment of their mortgage. Planning your repayment process is an attempt to insulate your finances from sudden crunches and upheavals in funds by setting aside the prefixed EMI amount you need to pay off your home loan.

Repayment planning is a healthy habit that all borrowers should practice, not only to minimize the risk of delay or default, but also to assure the lender of their intention to repay the amount. Having a well-researched repayment plan increases your home loan eligibility, allowing you to get a higher loan sanction with a more flexible repayment term. Those vying for competitive loan terms should do their part and present an interim repayment plan to their lender when they apply for a home loan.

What often escapes the notice of borrowers are the many repayment options available to help them effectively cover the cost of borrowing a home loan. Borrowers should be aware of repayment plans before applying for a home loan so they can factor these plans into their financial planning. Using a home loan prepayment calculator can help in this matter.

In this article, we explore the repayment options that lenders typically offer eligible borrowers and the best way to repay in a timely manner.

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

  1. EMI payments: Easily the most popular repayment plan, the EMI Payment Plan is easy to follow and adhere to. Monthly Equivalent Payments (EMI) are pre-determined payments you make each month, directly reducing your outstanding loan balance.

Your EMI amount is made up of your home loan principal and home loan interest in several parts, depending on where you are in your repayment term. You can decide how much of your EMI to pay based on your monthly obligations and choose a longer or shorter repayment term.

  • Partial prepayment: The partial prepayment method allows you to pay portions of your home loan repayment amount above your regular EMIs, which also reduces your home loan balance – and therefore, the total. mortgage interest spent. This can be a particularly attractive solution for individual borrowers who have variable rate home loans, as there are no fees on partial prepayments of their home loans.
  • Home Loan Foreclosure: When you can pay off the remaining home loan balance in one lump sum payment, you are effectively locking your home loan account. Borrowers can save significantly on their EMI and interest expenses if they take advantage of this option, if they have the necessary funds on hand.

There are other repayment options, such as deferred EMI payments, graduated repayment plans, lump sum payments, etc., but make sure you understand the payment agreement and financial implications before proceeding.

Those who wish to consider alternative repayment plans, in addition to regular EMI payments, have a lot to gain in terms of total cost of borrowing. Here’s how:

  1. Higher interest savings: Many borrowers sign up for a longer repayment term, often extending up to 30 years, but many do not necessarily need that long to repay the borrowed amount with interest. If you pay off or cancel the home loan prematurely, consider doing so, as you reduce the total interest payable.
  2. Greater repayment capacity: As you repay or close your loan account, you pay off your home loan balance in advance, restoring your ability to repay in full. Having greater repayment capacity allows you to explore other loan and investment options based on 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 partial prepayment or foreclosing on their loan. Other factors, such as current liquidity and timing, should be kept in mind before choosing either repayment option.

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