Buying a home is a significant milestone in one’s life. For most people, a home loan is the only way to realise that dream experience achieving that milestone.
When you apply for a home loan, understanding the repayment process is crucial to manage your finances effectively. This article explores when home loan Equated Monthly instalment (EMI) repayment begins and how you can prepare for it.
It also touches upon using a home loan repayment calculator to plan your finances better.
When Does Home Loan EMI Repayment Start?
After you apply for home loan, it comes disbursal, after which you pay the loan amount to the seller and get possession of the property.
After this, you get a grace period. Your home loan EMI repayment typically begins after this grace period, known as the “Moratorium Period” or “Holiday Period.” This grace period allows borrowers breathing room before repaying the loan. During this period, borrowers do not make any EMI payments.
The duration of the moratorium period can vary between lenders and home loan products, but it is commonly around six months to 1 year from the date of loan disbursement. Some lenders might offer extended grace periods for specific categories of borrowers, such as those constructing a house rather than buying a ready-to-move-in property.
What Happens During the Grace Period?
During the grace period, borrowers are not obligated to pay the EMI, but interest continues to accrue on the outstanding loan amount.
This interest accrued during the moratorium period gets added to the principal loan amount, which is then divided into EMIs over the loan’s remaining tenure. This is known as the “Pre-EMI” period.
It’s important to note that the interest is not waived while you’re not making EMI payments during the grace period. Make voluntary interest payments during this time if you can afford to, as it can help reduce the overall interest burden on your loan.
Using a Home Loan Repayment Calculator
A home loan repayment calculator can be valuable in planning your finances and understanding the EMI structure. Here’s how you can use it:
- Loan Amount: Enter the total loan amount you have applied for.
- Interest Rate: Input the applicable interest rate the lender offers.
- Loan Tenure: Specify the loan tenure in months or years.
- Moratorium Period: Some calculators allow you to input the period.
- Calculate: Click the calculate button, and the calculator will provide you with the EMI amount and the total interest payable over the loan tenure.
Using a home loan repayment calculator can help you:
- Understand the impact of the interest rate on your EMI.
- Experiment with different loan tenures to find a repayment schedule that suits your budget.
- Plan for prepayments or higher EMIs to reduce the overall interest burden.
Preparing for Home Loan EMI Repayment
As the grace period draws to a close, preparing for your home loan EMI repayment is essential. Here are some steps to consider:
- Review Your Finances: Assess your current financial situation and ensure you have a stable source of income to cover the EMI.
- Budgeting: Create a budget that includes your EMI payments. Make sure you allocate enough funds each month to cover the EMI comfortably.
- Emergency Fund: Have an emergency fund in place to handle unexpected expenses so you don’t have to dip into your EMI budget.
- Prepayment Strategy: If you have surplus funds, consider making partial prepayments towards your home loan to reduce the loan tenure and save on interest costs.
- Automated Payments: Set up automated EMI payments from your bank account to ensure you never miss a due date.
- Review Interest Rates: Keep an eye on interest rate fluctuations. If you have a floating interest rate, be prepared for possible changes in your EMI amount.
Applying for a home loan is a significant step towards homeownership, and understanding when the EMI repayment begins is essential for financial planning. The grace period or moratorium period gives borrowers time to prepare for their EMI obligations.
Conclusion
A home loan repayment calculator can help you clarify your EMI structure and plan your finances accordingly.
As you approach the end of the grace period, it is crucial to review your financial situation, budget effectively, and consider prepayment strategies to manage your home loan repayments seamlessly. With the right approach, owning your dream home can be a financially sustainable and fulfilling journey.
