Settling for an affordable home loan interest rate can be tricky. If not appropriately explored, borrowers may settle for a high EMI amount that can increase monthly budgets and drain unnecessary money. But, it is possible to reduce home loan EMI if certain factors are kept in mind while opting for this credit.
Tips to reduce home loan EMI
A home loan EMI depends on a variety of factors. This includes the loan amount, tenor and applicable interest rate and type. Individuals can check these simple tips to reduce home loan interest rates –
Tip 1: Opt for a suitable tenor
Opting for a longer tenor can significantly decrease the EMIs. This is because the tenor is inversely proportional to the EMI. However, opting for a longer tenor can eventually increase the total borrowing cost. Hence, while choosing a tenor, an individual must settle for a tenor per his/her financial affordability.
For instance, if an individual opts for a housing loan of Rs.10 lakh for 15 years with a rate of interest of 7.50%, then he/she is liable to pay Rs.9,270 as EMI. But, if all the parameters remain the same, except the tenor is increased to 20 years, the EMI amount reduces to Rs.8,056.
Tip 2: Make a higher downpayment
Downpayment is the amount a prospective borrower pays to a financial institution while opting for a home loan. As the loan amount disbursed is directly proportional to the EMI, a higher downpayment will lower the total loan amount, thus lowering the EMI.
Typically most lenders offer an LTV ratio of 75%, and borrowers have to pay the rest as a downpayment. For example, if the property price is Rs.1 lakh, then an individual can only get a loan of Rs.75,000, and the rest Rs.25,000 will have to be paid as a downpayment. Therefore, the EMI will be calculated at Rs.75000. But if the borrower has provided a higher downpayment, the loan amount gets lowered, and so does the EMI. However, this LTV differs with lenders.
Tip 3: Opt for regular pre-payment
An EMI consists of two-part: the principal and the interest. If a borrower regularly considers part pre-payment, it significantly lowers the loan amount, and the lender might consider reducing the EMI. Additionally, this allows trimming the tenor comprehensively.
Tip 4: Negotiate for a lower rate of interest
Although most borrowers don’t consider this an important criterion while avail a housing loan, the applicable interest rate is one of the most crucial factors affecting one’s EMI.
It is also important to note that lenders decide the rate of interest based on eligibility. Hence, meeting lender specific eligibility beforehand can significantly reduce the EMIs.
Tip 5: Opt for a home loan balance transfer
Existing home loan borrowers may transfer their remaining balance to a different lender providing a lesser interest rate. However, selecting a perfect time to transfer funds can be tricky. A home loan balance transfer can help reduce interest outgo and reduce the EMI burden.
Experts often advise opting for a home loan calculator to settle for an affordable EMI. This EMI calculator gives a detailed insight into financial calculations for a home loan. It has 3 variables: loan amount, tenor, and rate of interest. Individuals can alter those to settle for an inexpensive EMI.
Thus, when individuals apply for a home loan, it is important to use an EMI calculator. Also, they should check the eligibility beforehand.
Selected financial institutions also extend pre-approved offers that simplify and expedite loan processing. Such offers are available on a range of financial products like loans against property, home loans, etc. You can enter your name and contact number to check your pre-approved loan offer.
Thus, potential applicants can consider these tips to reduce home loan EMI and make substantial savings.