Depending on your financial situation, you must assess, whether to go for a flexi hybrid home loan or a regular home loan.
When you finally buy your own home you will need a home loan. As this kind of commitment involves a lot of money, you would need to choose the right kind of loan that would manage the repayment without any hassle. These days different kinds of home loans are available in India, and flexi hybrid loan is one such popular loan. Among the benefits it offers, one is providing a home loan of up to Rs 5 crore at a low interest rate.
According to experts, flexi-hybrid home loans are an alternative type of housing financing where a borrower has more flexibility in terms of paying out equated monthly installments (EMIs). This loan option allows borrowers to repay the component of the interest of the loan availed for the first few years. Thereafter, the EMI would include both principal and interest components. Such navigation not only makes for a low EMI cost but also ends up reducing the loan’s interest burden. On the flip side, if you fast forward a few years, the flexi loan EMI amount can be partially higher, considering it will now include the repayment of both – the principal amount and interest amount. Also, depending on the lending institution, borrowers can opt for a moratorium of a total of 60 months.
“Despite the long moratorium period which gives borrowers a breather as they need to pay only the interest during this time. However, this increases the cost of the loan in a very significant way. In the first place, as the outstanding amount consists of the entire principal, the interest you would be paying is also going to be huge,” Adhil Shetty, CEO, BankBazaar.com said.
“Assuming simple interest, you would be paying roughly Rs 37,500 every month for a Rs 50 lakh loan at nine per cent interest without any reduction of your principal. Compared to this, the EMI for a 20-year loan for the amount and interest would be approx. Rs 45,000. This means you reduce your EMI by only 20 per cent. At the same time, you end up paying approx. Rs 4.5 lakh extra in one year just as additional interest. The longer you opt for your moratorium, the higher the interest you pay over the lifetime of your loan,” Shetty added.
While a moratorium is a very attractive option, it can also be a very expensive one. So make sure you have a clear understanding of the financial implications before you go ahead.
Apart from the flexibility available on interest repayment, the flexi-hybrid home loan allows borrowers to partially prepay the loan amount multiple times, without incurring any additional cost. Banks do this so that the borrower can opt for an additional loan, against the prepayment made at a much-reduced rate.
“When you prepay a flexi hybrid loan, the principal amount remains unchanged and your EMI outgo remains the same. You can withdraw this amount later on in case of an emergency and pay only interest on it. Should you choose not to withdraw and your outstanding loan balance is equal to the prepayment amount and interest, the lenders would use the amount to close your loan earlier,” Atul Monga, CEO & co-founder, BASIC Home Loan said.
“Opt for a flexi-hybrid home loan if you have a regular source of income. Make sure the property against which you are seeking the loan is not under construction. With benefits like a low EMI and malleable prepayment and repayment methods, flexi-hybrid loans are preferred by younger borrowers. If you are looking for a home loan that is not only easy to avail but also simpler to repay with a reduced interest burden, then flexi-hybrid home loans are the answer,” Monga said.