Nishant Avasthy, a software professional employed with a firm handling US-based projects, decided to apply for a home loan of Rs 30 lakh after booking a residential property. However, he was enamored by the hill-view of a similar apartment on the 20th floor. Since the price increases per floor rise, Mr Avasthy had to consider going for a higher loan amount. Given that he was eligible for a loan of Rs 35 lakh, he gave in to the temptation of owning the apartment blessed with hill-view and went ahead with signing the loan agreement.

Consequently, his EMI increased from nearly Rs 36,000 to Rs 42,000, but his impending salary hike gave him the confidence of successfully tackling this rise. Unfortunately, things did not go as planned. Like several companies battling the impact of slowdown in the US, his firm announced paltry pay hikes. That is when Mr Avasthy decided to go for the EMI flexibility option, hoping that it would act as his saviour.

This is how it works: You pay a lower EMI (equated monthly installment) in the initial years and subsequently, you increase the repayment in congruence with the growth in your income. Another option is to accelerate the EMI as and when your disposable income goes up.

In certain cases, when you avail of loan to buy a property under construction, some banks/HFCs permit you to pay just the interest component till it is ready for occupation. Subsequently, you can start paying higher EMIs tracking your income growth. The upside is that you can finish the repayment within stipulated time. But again, your income growth should be capable of accommodating the rising EMIs over a period of time.

   However, experts caution against opting for such schemes. This is a typical problem. The housing finance companies (HFCs) try to sell step-up loans or accelerate EMIs in a bid to sell a higher loan amount. But that’s not a wise idea as it would eat into your future income even before wealth creation. Unless the year-on-year income growth is more than 30%, it would be very difficult to cope with increasing EMIs. Firstly, you have an increasing headline inflation, which has upped the prices of basic necessities. Over and above that, you would also have to deal with the mounting lifestyle inflation. It is better to get out of debt as soon as possible. Do not take a bridge loan to make a repayment either.

Your action plan

• Extend the tenure
You can extend the tenure of the loan in such a way that the EMI outgo remains at a manageable level. For example, you may have opted for a 20-year loan. If the increment doesn’t meet your repayment plan, you can extend it up to 28 years. That would keep your EMI constant. The flip side is that you will have to shell out a higher interest amount with the tenure extension. In such a case, you could consider part pre-payment of the loan whenever you have surplus funds.

• Make use of surplus funds, investments
If you have windfall gains like bonus, you can use the funds to prepay your loan. Also, you can consider liquidating the debt instruments that are not yielding good returns.

• Cut your expenses
The best recourse to such problems is making changes in your lifestyle. You should cut corners and lower your consumption needs to meet the EMIs. You have two options. Either you make self changes or loan-related changes such as tweaking payment schedules and looking at different repayment plans. However, making lifestyle changes is always advisable.