A home loan is often the go-to solution to fund the house of one’s dreams. Comparatively lower interest rates and relatively longer tenor have made it a popular option to fund a real estate purchase. However, when it comes to repaying a home loan, one needs to be more alert about the monthly outgo, especially which goes towards the home loan. If not planned well, home loan equated monthly instalments or EMIs may cause undue stress on one’s budget, increasing the cost of the loan. If one is planning on availing of a home loan or has already availed of one, they can consider these smart tips to reduce home loan EMI.
1. Reduce Home Loan EMI by Making a Higher Down Payment
Lending institutions usually finance up to 75% of a property’s market value as a home loan. The remaining must be borne by an applicant as a down payment. The value a lender finances is known as the loan-to-value (LTV) ratio. As a rule of thumb, higher down payments mean a lower loan principal and therefore, lower home loan EMIs. Besides, home loan eligibility rises if one applies for a home loan with a relatively lower LTV ratio as the risk of the borrower defaulting gets significantly reduced.
2. Reduce Home Loan EMI by Negotiating Terms with Lenders
Lenders are appreciative of responsible borrowing behaviour. If an applicant has made their earlier repayments on time and has a credit score of 750 and above, they are more likely to get a better home loan deal and lower interest rates. Despite a higher credit score if one’s home loan interest rate is still lower, one can consider negotiating the terms with the chosen lender. However, to do so they must maintain a good rapport with those in charge. Besides, one must also always be on the lookout for special offers lenders offer only to their existing customers.
3. Reduce Home Loan EMI by Planning for a Longer Tenor with Part-payment
A longer tenor, typically, means a lower monthly EMI, albeit a higher interest outgo toward the lender. Before applying for long-term credit, one needs to figure out all upcoming liabilities and design a prepayment plan per that. One must plan on making part-prepayments based on their financial capacity every three to four years and again readjust the loan tenor. This way, home loan EMI payments can be reduced, and one can easily adjust the outgo on the disposable income. Any home loan EMI calculator can come in handy and help one plan the home loan repayment and reduce monetary stress.
4. Reduce Home Loan EMI by Sharing the Burden with a Co-Borrower
If one’s monthly outgo seems to strain finances, they must consider applying for a joint home loan. If applicants are co-owners of the same property, the incomes of both co-applicants are considered when assessing the home loan eligibility criteria. In some states, female co-borrowers can take advantage of stamp duty concessions for home loan tax benefits per the IT Act. Some lenders reduce home loan EMI for female co-owners.
5. Reduce Home Loan EMI by Switching Lenders
If one finds that the current home loan interest rate that their lender is charging them is higher than what other financial institutions are offering, one can consider a home loan balance transfer. Under Balance transfer of a housing loan in India, the unpaid principal home loan amount gets transferred to another lender but at a lower interest rate. The lender who had initially extended the housing loan gets the unpaid amount. On the other hand, the applicant has to now pay EMIs at the new rate to the bank that has taken up the applicant’s loan.
Almost all lenders in India offer the home loan balance transfer facility. If one has been paying home loan EMIs religiously, then a home loan balance transfer won’t be difficult.
Home loan interest rate, at the moment, are experiencing a historic low. This means that by transferring the remaining home loan principal to another lender at a favourable interest rate, one can save up a significant amount. One must keep in mind that refinancing a home loan is beneficial, particularly during the early stages. This is when the home loan interest is higher than the principal amount in the home loan EMI. Before making a move, one must carefully compare the home loan interest rates and calculate how the difference will affect the monthly home loan EMI outgo.
The Final Word
Availing of a home loan is a critical decision. If one does not do enough homework to zero in on the most appropriate housing loan deal, it can cost one significantly as a home loan is a long-term loan often extending up to 15-20 years.