When you apply for any loan, one thing that you are sure about is the need to repay it back, the principal along with the interest. This repayment is as per a pre-decided schedule, the total amount (interest and principal) is divided into Equated Monthly Installments (EMIs). So if you have taken a home loan of Rs. 30,00,000 for 25 year @ 9% (fixed) you will have to pay an EMI of Rs. 25,176 for the next 25 years unless you prepay the loan! However what if told there could be a twist in the tale. The EMI amount could vary. Let’s read to understand more.
What are Flexi Pay Loans ?
In current times financial service providers are going out of their way to offer customized products and services to their clients. Flexi EMIs are just an example of this. There are four options that can be offered to the borrower so that he can have a flexible repayment schedule.
Step Up EMI: The EMI on the home loan is less for the initial years and increases in the later part of the loan duration.
Step Down EMI: This as is clear from the name is converse of the first option. The borrower pays lesser during the later years of the loan duration and pays a higher amount in the initial years.
Bullet EMIs: Here the borrower pays at regular intervals some amount (also called the bullet amount) which reduces the overall loan burden.
Balloon EMIs: Here the EMI burden is low during the entire loan tenure and the borrowers pays a big (balloon amount) at the end of the loan term.
The above are the four types of flexi repayment options that are available to the borrower for repayment but banks in India currently offer flexibility in repayment either as per the step up EMI or step down EMI method.
How Does the Flexi EMI Option Work?
Currently ICICI offers the option to repay in a flexible manner where during initial years higher payments are made and in the later years lower amount is paid like in the step down method. This is called the Flexible Loan Installment Plan (FLIP). So if you have an ICICI Bank Home Loan and you have the option to repay your dues using the FLIP method.
This is suitable for those borrowers who have applied for a loan jointly and as the years go, one of the applicants may retire or may stop working. This means that the income inflow is expected to reduce in the later years of the tenure. So here the borrowers have the option of paying a larger amount in the initial years when both are working which means higher disposable income in the early years of the loan.
SBI Flexipay Home Loans which are designed a little differently. Here SBI provides the borrower an option to take a higher loan amount (they offer higher loan eligibility). This facility is available to only the salaried individuals. The borrowers can choose to pay only the interest part during the moratorium or the pre-EMI period, after this they pay moderated EMIs. The EMI amount goes up for the later years (it is stepped up).
This option is very suitable for young borrowers who may not have the income levels to borrow the required amount of loan (in current times) but their salary levels are likely to go up in the future so they will be able to bear the burden of bigger EMIs. These loans offer enhanced loan eligibility which may be up to 20% higher.
Lenders are trying their best to offer flexible options to borrowers to repay their dues however borrowers need to use their discretion when choosing a product for themselves. Not being able to pay the dues on time could have financial implications and also impact the CIBIL score calculation negatively. So borrow only the amount for which you can bear the EMI burden.