An Interest-Only Home loan is a type of home loan where you will pay only the interest component of the loan during the first few years of the loan. This initial period is known as the ‘interest-only period’ of the Home loan. Repayment of the principal amount starts after the interest-only period is over.
During the initial interest-only period, the monthly repayments of the IOHL are lower than standard home loans. With a regular home loan, the equated monthly instalments (EMIs) are made up of the interest plus the principal component. With an IOHL, you can choose to repay the interest component upto the first three years of the loan.
Here is an illustration of how IOHL works:
| Loan Amount (Rs) |
Interest Rate (%) |
Monthly-repayment during the interest-only period – 36 months (Rs) |
Monthly-repayment post the interest-only period (Rs) |
| |
|
|
|
| 80,00,000 |
7.25 |
48,333 |
60,711 |
Here is a comparison for the same amount with a regular home loan:
| Loan Amount (Rs) |
Interest Rate (%) |
Monthly-repayment during the loan tenure (Rs) |
|
|
|
| 80,00,000 |
7.25 |
57,825 |
There are some great benefits to choosing an IOHL here are some of them:
- Frees up cash flow:
Lower monthly payments during the interest-only period offer more flexibility in where and how you use your money. Some amount of the money that you save during the interest-only period can be put aside toward another investment. Perhaps, that money can be used for starting a business or toward a systematic investment plan (SIP).You can also transfer your existing home loan to Standard Chartered Bank’s IOHL, allowing you to pay a lesser amount for upto three years.
- Keep costs low:
Sometimes, an interest-only payment may be the only option you can afford. The initial three years give a respite from higher EMIs. If you have an irregular income, an IOHL may be a good choice for you.
- Enhanced flexibility:
You have the flexibility of starting the consolidated EMIs (Interest + principal amount) earlier. You may also be able to use any extra cash to repay a part of the principal amount to lower the EMI burden later on.
Any salaried, self-employed, or self-employed professional can avail of an IOHL. Both new and existing Standard Chartered Bank customers can avail of the IOHL home loan.
The IOHL facility can be used only for completed residential properties. Up to 80% of the cost of the property is given as the loan amount.
If you have an existing home loan, you can transfer it to the Standard Chartered Bank IOHL facility to enjoy lower monthly payments upto the first three years of the total loan tenure.
If you are looking to purchase a new home but you are not able to repay regular EMIs, then an IOHL is a good choice. The initial interest-only period of an IOHL makes buying a home a more affordable and realistic option compared to other home loans. With smart financial planning, you can use the interest-only period to invest wisely and save up to repay the principal amount sooner.
