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How to repay your home loan efficiently

Often the biggest advantage of choosing a flexible repayment option is to reduce your immediate EMI burden. Here are some of the options available in the market, what they mean and who can look at them.

June 20, 2015 3:02 IST | India Infoline News Service

The cutthroat race in the home loan market and the customer-hungry real estate industry, you often come across all sorts of offers. Some of these offers relate to repayment of home loans, which are often tailor-made to suit the loanee’s requirements, cash flow patterns and income growth projections.
 
Often the biggest advantage of choosing a flexible repayment option is to reduce your immediate EMI burden. Here are some of the options available in the market, what they mean and who can look at them.
 
The first one is the accelerated repayment option. This is a great option to end your loan as fast as possible. It allows you to increase your EMI payment whenever you have surplus money or your income goes up. By doing this, you can speed up the loan repayment and save a great deal on interest outgo that you would have paid otherwise over the long tenure of the loan.
 
The second option is step-up loans. This is best suited for someone who has just began working. Here you can have a low EMI to begin with in the initial years, which can then go up gradually as you gain experience in terms of number of years and your income rises. Opting for this option can also help you get a higher loan amount, because the lender can consider your career growth options as a reliable factor while deciding the loan amount.
 
Step-down loans are the opposite of step-up loans. This loan repayment option is for someone who is at the end of his/her career or close to retirement. Under this option your EMIs start on the higher side in tune with the higher salary and then drops gradually in line with the post-retirement income of the borrower
 
Balloon repayment is somewhat like a step-up loan, where the borrower would pay lower EMIs in the initial years of the loan tenure. But as years go by, the borrower would be required to pay more than one-third of the loan amount during the last installments.
 
Which of these options is appropriate for your will depend on your actual requirements, income pattern and life stage. The bottomline is never borrow money unless you absolutely need it. Consider the possibility of taking a loan from family or friends. And, if you are forced to take out a loan from a lender, borrow money only after taking into consideration your income and age. These factors will ensure that you repay a loan without much difficulty. Paying a loan on time is a prerequisite for a good credit history and score, which would in turn help you become a prime borrower to lenders.

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