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FLIP, if repaying home loan hurts

FLIP gives the option of paying a higher EMI during the initial loan tenure which can be decreased in the latter part. The decrease is proportionate to the reduced income of the customer.

Pooja Gawde

29 Dec 2008

There are various options of home loan repayment, the most common being fixed equated monthly installments. This can be quite a challenge for those loan borrowers who have fluctuating cash-inflow every month. 

Some banks such as Union Bank of India (UBI), ICICI Bank and Housing and Development Finance Corporation (HDFC) offer a home loan repayment option known as a Flexible Installment Plan (FLIP). This repayment option is available to both Indian residents as well as Non Resident Indians (NRI) whether self-employed or salaried.
Usually, the bank offers FLIP to joint home loan borrowers. In the flexible loan installment plan (FLIP), the EMI reduces as the time passes. If one of the applicants of the joint borrower is set to retire earlier, the repayment is frontloaded.

The equated monthly installment (EMI) is higher during the initial years and subsequently, decreases in the latter part, proportionate to the reduced income of the customer.
You can increase the EMI amount and accordingly reduce the loan tenure. Most banks allow the EMI revision of up to three times during the tenure of the loan.

Let's take a working example. If you take a loan for Rs 10 lakh for 180 months at 10 per cent, the EMI would be Rs 10,746. Now if you plan to increase the EMI by 3 per cent ie. 13 per cent after 36 months, the new EMI will be Rs 12,652. The remaining period will come down in proportion to the enhanced repayment. You can also use the 'Loan amortization calculator' to know more about the loan repayment.

This scheme can be specifically beneficial for the salaried class who can increase the EMI if they get a raise.

Under the FLIP scheme, the borrower can pay a lump sum and has the option of either reducing the tenure period or the EMI amount.
The EMI payable becomes affordable based on the individual income source and also the family income.