Buying a home involves payment plans or mortgage payment plans, enabling the buyers to get hold of the property. A strategic payment planning in an early stage streamlines financial preparedness and gives you enough time to organise a feasible payment schedule. This lifts the burden off your shoulders.
Here are different payment plans a homebuyer can explore.
Different payment choices for home
1. Mortgage Repayment
This traditional payment option allows homebuyers to pay the borrowed amount in systematic monthly EMIs. It includes a portion of the borrowed principal amount and interest incurred. Regular repayment of the mortgage reduces the outstanding amount. Over time, homeowners’ equity increases in the purchased property.
At present, this payment plan is quite famous and is known as ‘mortgage repayment.’ The flexibility to repay principal and interest simultaneously feels easy for the borrower.
2. Interest-Only Mortgage Payment
As the name implies, this payment option involves paying back only the interest amount every month for a specified tenure. There is no change in the principal amount, which a borrower needs to pay back in full once the mortgage term approaches its competition. This type of payment plan is ideal for those who want to generate income by investing the capital amount in another place.
3. Variable-rate mortgage
In this type of home loan, the rate of interest keeps changing and is not fixed. It gives borrowers more flexibilities as it depends on the market rates. It can also be referred to as adjustable-rate mortgage as it initially comes with a fixed rate of interest and once the period ends, the adjustment of the interest rate is done periodically.
The monthly payment fluctuates as and when the fluctuations take place in the interest rate. So, the monthly payment could be higher or lower.
4. Fixed-rate Mortgage
A fixed-rate mortgage is when the home loan incurs a fixed rate throughout the loan term. Simply put, the monthly EMI remains the same, and the interest rates don’t change over the period. Even after the market rates are down, the fixed-rate mortgage doesn’t show any changes.
Which payment option to choose?
Your home-buying journey becomes smooth with the selection of the right payment option. But before you make a selection, consider these handy tips.
1. Evaluate your financial condition
Before choosing a payment plan, evaluate your financial conditions. Take a closer look at your savings, income, expenses, and liabilities. Based on your financial strength, pick a payment plan that’s easily manageable.
2. Consider loan eligibility
Your loan eligibility ensures whether the bank will disburse the home loan to you. It also determines your affordability and the percentage of the down payment that you’ve to bear. You can streamline your eligibility with the payment plan and move ahead with purchasing the desired property.
This will also take the financial burden off your shoulders.
3. Assess your future finances
Assessing your future finances is also crucial. Since taking a loan will have your monthly payments as an extra expense, choose a payment plan that’s easy to handle.
4. Mull over risk tolerance
Think of risk tolerance when taking a home loan. For an anticipated payment plan, you may choose a TLP (Time-Linked Plan) and for fluctuations, you can opt for a CLP (Construction-Linked Plan).
5. Consider builder’s credibility
Make sure to choose a credible builder. Find a developer with a suitable payment schedule. Make sure to check for all the documents before agreeing to the terms and conditions.
A careful consideration of all the factors discussed earlier, you can easily cater to your home loan goals.
Conclusion
As a homebuyer, you should evaluate your financial conditions and find the right payment schedule. Make sure to compare all the mortgage rates for preferred terms.
