The key benefits of an IOHL are
1. Lower initial monthly repayments:
With regular home loans, the monthly repayments are made up of a portion of the principal to be repaid, as well as the interest component. With an IOHL, you only need to repay the interest component for a fixed period. So, if your dream home has high EMIs with a regular home loan, you can still purchase it with an IOHL as you will only repay the interest component during the initial period.
Example
You want to buy a ready-to-move-in 3 BHK flat. You need a home loan worth Rs 95 lakh. However, the EMIs on a regular home loan come up to Rs 70,204 at an interest rate of 7.5% for 25 years. At the moment, due to unavoidable circumstances, you are not able to afford such a high EMI amount.
In that case, you can opt for the IOHL facility for the same loan amount of Rs 95 lakh and an interest rate of 7.5% for 25 years. For the initial three years of the loan tenure, you can choose to pay Rs 59,375 as the monthly interest amount.
2. Use the interest-only period to pay less in the initial years till you can afford the entire EMI:
Since you will be paying only the interest in the initial period, you can use the difference amount for another investment. Suppose the regular home loan EMI had an amount of Rs 20,000 as part of the principal repayment. So, you can choose an IOHL facility where the principal repayment is postponed for three years.
During the interest-only period, you can utilise the money you are not paying the lender and invest in a Systematic Investment Plan or shares or any investment that have the potential to give you great returns after three to five years.
In this way, you can use the interest-only period to build your wealth. The difference amount can also be put toward the principal repayment when the interest-only period ends.
3. Flexible repayment schedule:
If you find that you can service both the interest and principal components of the home loan during the interest-only period, you do not have to wait to start the consolidated repayment.
An IOHL gives you the flexibility of starting the monthly repayments that include the principal amount even before the end of the interest-only period. At the end of the interest-only period, you can repay the pending amount in a lump sum or EMIs.
4. Reduced initial cash flow:
During the initial interest-only period, you will have better cash flow as you will not be paying as much to the lender as with regular home loans. The differential amount can go towards your personal needs, purchasing furniture, renovation costs, and more.
5. Get up to 80% of the total property cost as an IOHL:
An IOHL can give you up to 80% of the loan amount. Perhaps the initial cash outflow would be higher with a regular home loan. However, with an IOHL, the monthly payments are lower initially. So, you can opt for a bigger property.
The takeaway
Make your dream home a reality with Standard Chartered Bank’s Interest-Only Home Loan. With a smart financial strategy, you can plan your cash outflows so that the initial outflow isn’t heavy on your pockets.
