When you decide to buy a home, understanding your finances is key. If you choose to take a home loan to facilitate your purchase or to supplement your savings, it is important that you weigh all your options. When it comes to the category of home loans, you can choose from two options: a regular home loan or a term home loan, and a Flexi Hybrid Home Loan.
Bajaj Finserv offers both a Home Loan and Flexi Hybrid Home Loan at an affordable rate of interest. Besides, you can expect easy application, quick disbursal of funds and add-on benefits like a lengthy tenor and an easy top-up loan when you choose Bajaj Finserv’s home financing.
Before you select a loan, it is important that you understand how the two differ. While both offer a high loan amount at a low interest rate with a lengthy tenor, read on to find out more about the nuances that set them apart.
Constitution of EMIs
First and foremost, take a look at how the EMI of each of these loans is structured differently. When you take a regular home loan, each EMI that you pay consists of payment towards the principal and the interest on the principal.
In the initial years of the tenor, for each EMI payment, the contribution towards the interest is higher and the balance goes towards the principal. As the tenor progresses, the interest component of your EMI becomes lower, and the principal component increases until your EMI’s are balanced between the two. At the end of the tenor, you’ll find that your EMI payments are going 100% towards the principal.
When you opt for a Flexi Hybrid Home Loan, EMIs are structured differently. Some EMIs comprise only interest, while others comprise interest and principal. If you’re wondering why this happens, read on.
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Amount of the EMI
When it comes to a term loan, the amount of your EMI stays constant. This means that while the ratio of how much is going towards the principal and interest will vary as the tenor progresses, the total EMI amount will stay constant from start to finish. For example, if your EMIs are Rs.50,000 each month, in the beginning around Rs.40,000 will go towards the interest, and Rs.10,000 will go towards the principal. Further along in the tenor, this might change to Rs.35,000 going towards interest, and Rs.15,000 towards the principal. However, in both cases, what stays constant is the amount that you pay each month, which is Rs.50,000.
On the other hand, when you take a Flexi Hybrid Home Loan, the tenor starts off with a low EMI, and then progresses to a higher EMI. This is because in the initial years of the tenor, you only have to pay interest on the loan and you don’t have to pay anything towards the principal. You can follow this schedule for a period of 4 years. After this, the EMIs consist of both interest and principal and so, the EMIs increase. Continuing with the earlier scenario, when you take a Flexi Hybrid Home Loan, you will only have to pay Rs.40,000 per month for the first 4 years. After this, you will also have to pay towards the principal, so the EMI amount will increase to around Rs.50,000, for example.
Additional Read: Home Loan Fees and Charges
Effect of Making a Part-prepayment
Assume that you take a regular home loan for Rs.80 lakh for 15 years and that you part prepay Rs.10 lakh in the 5th year. Since part-prepayments are made towards the principal, your loan amount will drop to Rs.70 lakh. Then, you can either enjoy lower EMIs and repay the loan over the same tenor, or continue to pay the same EMIs and repay the loan quicker, over a shorter tenor. Thus, this option allows you to clear your debt quickly and more easily.
When it comes to a Flexi Hybrid Home Loan, prepayments work differently. The lender will take the amount that you want to prepay, in this case Rs.10 lakh, and set it aside. You can accrue the benefit of prepayment later on during the tenor. Assume that in the 11th year of your tenor, you need another small loan to meet with home expansion expenses. Now, you can take the Rs.10 lakh that you had made as a prepayment as a loan, at an extremely low rate of interest.
The key benefit here is that you only have to repay interest on this add-on loan. Once you have only Rs.10 lakh left to repay on your Flexi Hybrid Home Loan, the lender will use your part-prepayment amount and close your loan immediately. This allows you to close your loan faster.
In the event that you don’t need to withdraw Rs.10 lakh that you have prepaid, the lender will use this amount, as well as the interest that you have been paying on it, to close your Flexi Hybrid Home Loan prematurely. When you have an outstanding amount that is equal to Rs.10 lakh, plus the interest on it, the lender will adjust it and end your loan. This also allows you to settle your debt with ease, in a shorter timespan.
In both cases, when you take a loan from Bajaj Finserv, you can also make as many part prepayments as you wish to at no extra charge.
For Different Folks
The way the two loans operate is vastly different, making it suitable for different people. While a regular home loan is ideal for anyone who can afford the entire EMI amount from the get go, the Flexi Hybrid Home Loan option is better suited to those who seek more flexibility with regards to repayment.
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For example, as a marketing executive in your late 20s, you might find the total EMI amount unaffordable. But, you do anticipate being able to accommodate it in the next few years. Here, a Flexi Hybrid Home Loan comes in handy. It helps you buy a home early on in your career by enjoying low, interest-only EMIs that fit into your budget for the first 4 years of the tenor. Thereafter, once your income increases suitably, you can start paying regular EMIs. As a result, you don’t have to delay purchasing a home.
So, depending on your financial situation, evaluate both options and identify the one that proves to be a good match. Whether it is a Home Loan or a Flexi Hybrid Home Loan, apply to Bajaj Finserv to get access to the best benefits and low home loan interest rates.
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