What is the rest period in case of home loans?

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oi-Roshni

By Roshni Agarwal

Published: Tuesday, April 22, 2014, 13:06 [IST]

Best home loan offer with the lowest total interest outflow (i.e. a low cost deal) is not only the factor of interest rates but also has other aspects to it. One such aspect is the rest period that is nothing but the interval at which the remaining loan amount balance is recalculated and applies in case of reducing balance loan in which the interest is recalculated on a periodic basis depending on the balance loan amount. These rests or regular intervals can be either daily, monthly or annual.

The other way banks offer a home loan facility is at a flat rate i.e. the interest amount on such a loan is calculated by keeping the outstanding loan amount constant throughout the term of the tenure. For instance, a borrower securing a sum of Rs. 5 lakh at a flat rate of 10% for a term of 5 years will have a monthly outgo of Rs. 12,500 as EMI. So, even when you begin to repay for the debt from the first month onwards, you are charged for the entire loan amount throughout the tenure which makes it costly. Know about fixed and floating interest rate option.

In an annual rest, though the repayment for the debt is made month-on-month, the loan amount based on which the interest is paid is recalculated only after the end of the year, implying that even when the outstanding loan amount reduces every month, you end up paying the EMI on the same loan amount.

In a monthly resting period, borrower has an advantage as the remaining loan amount balance is recalculated and correspondingly decreases every month and based on it borrower is liable to pay less interest amount. Also, as the period matches with the frequency of loan repayment, borrower is better off.

In a daily rest, outstanding loan amount balance is re-calculated on a daily basis. Such an option can be opted by self-employed individuals who do not have regular income stream and can repay the debt at different or several times in a month

Which resting mode to select?

So, depending on your repayment schedule and frequency of loan repayment, you should choose the resting period i.e. the resting interval should closely match the loan repayment frequency implying for a monthly repayment mode opt for a monthly rest as the interest rate in its case will come to be lower than in case of annual rest. Generally, banks charge an interest rate at an annualized rate that is converted to a monthly or daily rest accordingly.

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