As per a report, ‘How India Lends-FY21’, the home loan portfolio grew 32% in origination by value and by 15% in volume between FY17 and FY21. While numbers substantiate the popularity of this credit facility, individuals need to chalk out a robust repayment plan in advance to clear the debt without difficulties.
They can also follow some useful tips to reduce the home loan EMI burden and plan their financials accordingly.
Top 5 tips to reduce home loan EMI burden
The home loan EMI primarily depends on the loan corpus, tenor and interest rate. Hence, it is essential to adjust these variables to reach a feasible EMI payable. In this regard, borrowers can also use a home loan emi calculator, readily available online.
Besides, the following tips will also help them keep their housing loan EMI under check:
The simplest way to reduce home loan EMI is by selecting a longer tenor. Typically, a home loan repayment tenor ranges up to 30 years. It offers great liberty to borrowers to repay the debt comfortably. However, one must remember that while a longer tenor reduces the EMI burden, it increases the interest payable.
For more clarity, let’s take an example.
Suppose an individual opts for a home loan of Rs.40 lakh at a housing loan interest rate of 7.5%. If that individual opts for a tenor of 20 years, the EMI would be Rs.32,224, and the total interest payable would be Rs.37,33, 622. If he/she reduces the tenor to 14 years, the EMI would be Rs.38,526, but the interest outgo would be Rs.24,72,295.
Hence, it is clear how a longer tenor helps reduce the EMIs payable.
The home loan interest rate is directly related to EMI outgo. Higher the rates, the more expensive the EMI is. The interest rate varies across lenders, and therefore it is imperative for intending borrowers to compare different rates before finalising one.
Note that the lenders offer an interest rate after assessing the home loan eligibility of applicants. Hence, meeting lender-specific eligibility criteria also helps secure the most competitive interest rate.
The eligible candidates can also leverage Pradhan Mantri Awas Yojana or PMAY to save on interest payable. The beneficiaries of this scheme can avail PMAY subsidy on the interest rate and maximise savings.
However, individuals need to meet the most eligibility parameters and have their names on the PMAY list published from time to time.
If not directly, the downpayment also plays a vital role in determining the home loan EMI. Typically, lenders offer an LTV of up to 90% for a home loan. Therefore, borrowers need to make the rest of the amount down payment.
For instance, the property price is Rs.1 crore, and if the LTV is 75%, the maximum loan amount one is eligible for is up to Rs.75 lakh. Thus, for the rest of Rs.25 lakh one needs to make a downpayment.
Now, if an individual pays a higher down payment, he/she needs to borrow less, and the EMI will reduce considering the lower loan corpus.
Thus, if you can afford it, making a substantial downpayment helps bring down the monthly instalments to a great extent.
The existing home loan borrowers who pay higher home loan interest rates can transfer the outstanding balance to a new lender offering lower rates. Besides interest outgo, it also helps reduce the EMI burden. However, individuals need to know the right time to opt for this facility to maximise savings before opting for that.
They should also consider the balance transfer cost and ensure that it is not eating up the amount saved. Additionally, lenders also often extend top-up loans during balance transfer. Since this fund does not have any end-use restrictions, borrowers can utilise it for various purposes.
Existing borrowers can also avail pre-approved offers extended by selected financial institutions. These offers are instrumental in making loan processing hassle-free and quick. Besides home loans, these are also available for loan against property. Enter your name and contact number to check your pre-approved offer.
If the pocket permits, it is wiser to make part-prepayment from time to time. With this facility, individuals can either trim the tenor or settle for lower monthly instalments.
Individuals can utilise the festival bonuses, incentives, and maturity amount earned from investments, etc., for part-prepayment purposes. Selected financial institutions also provide a part-prepayment calculator for a home loan that helps borrowers assess the total savings on the interest amount.
Thus, these are the best 5 ways to reduce home loan EMI and make room for other liabilities. However, individuals should also consider the additional charges that lenders levy as and when applicable. It also influences the total cost of borrowing.
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