Paying back home loans: Which repayment option suits you best?
By Joseph Samson
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For many, home loans provide a substantial source of finance required for owning a dream home or apartment. Every individual buying a house has a different financial background and thus has different financial requirements. To cater to this individuality of home loan borrowers, housing finance companies and banks offer a variety of repayment options to suit an individual buyer's need.

Usually, the repayment options are customized according to a borrower's capacity to pay equal monthly installments (EMI) at different stages of his productive life. They are designed to simultaneously benefit both the borrower and the lender. While deciding on which repayment plan to offer to a customer, lenders usually consider factors like monthly income, stability of employment, age of the customer and any other debts that are being serviced by him.

On the other hand, while choosing a repayment option for self, a borrower should keep in mind that the chosen scheme is affordable, increases his repayment capacity and gives him tax benefits. The aim of choosing a suitable repayment mode from a number of of them is to make repayment of home loans easier. Before selecting a repayment scheme borrower should take some time to understand its features, after all this is a long term financial decision which will have a considerable impact on an individual's finances.

Various repayment plans on home loans are as follows:

Step up repayment facility (SURF)

Step up repayment facility is one in which the payment of installments are directly linked with the borrower's monetary development. Best suited for those who are in the initial years of their employment, this plan allows the borrower to pay lower EMIs in the initial years which gradually increases with each phase along with an increase in the borrower's earnings.

Flexible loan installment plan

Also referred to as a step down repayment facility, the flexible loan installment plan is structured in such a way that the EMI amount decreases as the loan progresses. It means that in the initial years the repayment installments are high and they go on reducing in the later years. It uses the concept of reducing balance to determine EMI amounts in different stages of repayment.

This repayment plan is best suited for those who are nearing retirement, as these individuals can pay high EMI amounts for some initial years when they are still employed, and then they need to lower the repayment amount in proportion to the decrease in their income.

This repayment plan can also be availed in those cases where children and parents buy property together. In these situations, usually the parents are nearing retirement and the children have just started earning. Under this plan, the incomes of parent and children are combined to obtain a long term loan in which the installment amount declines after the retirement of the parent.

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