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Alisha | 13 Feb 2023

Steps To Help You Better Plan And Reduce Your Home Loan EMI

Steps To Help You Better Plan And Reduce Your Home Loan EMI

The interest rate payable on a home loan and the tenure of the loan are the main determining factors of the total amount one has to pay as monthly EMI (Equated Monthly Instalment). However, there are ways to reduce your home loan EMI. Want to know more about them? To begin with, go with the lender who will offer home loan at a lower rate of interest.

How not to let a loan burden you

One of the things to consider while cracking a better or the best deal is a good credit report and a good credit score, which will determine your repayment capacity and credit behaviour. Plan better and avoid being burdened by a loan by:

  • Comparing the interest rates of different lenders. As a borrower seeking convenience, you are likely to pick a financial institution with which you already have a savings account. Stop this habit and start looking for the best rates available for loans in the market first and then see the convenience of getting it approved.

  • The shorter tenure for loan repayment is always advisable. A financial institution has multiple tenure options. Opting for EMI with shorter tenure over longer tenure will give you the benefit of lower interest rates.

  • While opting for a loan, check in detail the penalty clauses and other charges.

Also Read: Important Points You Should Know Before Applying for a Home Loan

Let's divide the method of reducing the EMI burden of a home loan in two segments:

1. New home loan borrower

Exploring how you can apply for home loan and choosing the ideal lender is full of challenges. The following ways will surely help you get a good home loan deal as well as reduce your EMI payments:

  • Compare the home loan rates online - In the digital world and the Government's successful initiative of Digital India, why not try the way of online service? You can check several home loan offers at one time and compare the best suitable deal online. The online portals will help you get information and service comparison of various financial institutions.

  • Longer repayment tenure on your home loan - If you think that you cannot afford to pay higher EMIs, opt for longer tenure which will assure you lower EMI payment every month. However, be ready to pay more interest on the outstanding amount of your home loan.

  • The advantage of making a bigger down payment - A Home loan lender shall finance up to 80-90 per cent of your property's value. Rest of the 10-20 per cent will have to be paid by you as a down payment. Why not make the contribution higher from your end? Higher contribution means lower Loan To Value (LTV) ratio. By definition, LTV means the ratio of a loan to the value of the property purchased. Bigger down payments will enhance your loan eligibility and increase the chances of approval too. However, decide a down payment amount which will not make you stress and overstretch your finances.

2. Existing home loan borrower 

The following ways will help you look better home loan EMI as an existing home loan borrower:

  • If not satisfied with the present lender, you can switch to another lender who is offering better rates. The Reserve Bank of India (RBI) allows banks to set their MCLR (Marginal Cost of Funds based Lending Rate). Hence, interest rates offered differs from lender to lender.

  • Negotiation on service terms - Make good use of your relationship with the present lender and try negotiating on service terms of the home loan. Doing so, you may be able to achieve lower interest rates.

  • Prepayment of a home loan is a good idea - With the amount present at your bank account, you can make prepayments for your home loan. Prepaying will help you reduce the overall payment of interest before your home loan tenure ends. Discuss with your lender and see how can you proceed and benefit with prepayment.

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