Home loan EMI: Five ways to reduce your burden

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A home loan is a long-term commitment for most borrowers. The tenure of a home loan usually goes up to 20 to 25 years or even 30 years. So, taking a home loan requires a proper assessment of one’s finances and planning. The EMI of home loans mainly depends on the borrower’s loan amount, interest rate and tenure. Of late, the interest has come down to a record low of around 6.5%. Here are a few tips for reducing the home loan EMI burden.

Longer tenure

The shorter tenure of home loans will increase the EMI. You can opt for home loans for a tenure of up to 30 years. New home loan borrowers can reduce their EMI burden by opting for a longer tenure. It will also increase the eligibility of the applicant. However, a longer tenure also increases the overall interest cost of the loan.

Comparison

A home loan is a long-term commitment. Therefore, even an apparently minor half a percentage difference in interest rates can make a lot of difference to the amount of money the borrower repays to the lender during the tenure. You should do proper research and compare the interest rates before opting for a home loan. Third-party portals give a clear picture of the rates and other charges levied by different lenders.

Also, if you have a good credit history then you can get better interest rates. So, you should compare the home loan interest rates for all banks and then decide on a particular bank or home loan product. Also, buying during festivals can give you good deals.

Bigger down payment

Most lenders finance 90% of the total value of the property in India and the borrowers need to arrange the remaining amount as a down payment. Most borrowers try to opt for a minimum down payment contribution. But if the buyer pays 30% or 50% as a down payment then he or she can save more as the higher you pay initially, the lower will be the loan amount, which directly reduces the interest you have to pay.

Make pre-payments when possible

This option is preferred by smart home loan borrowers as they save and prepay their home loans. It not only reduces the total payable amount but also reduces your interest rate. During the first few years of the loan, one pays more towards the interest than the payments made towards the principal amount. Making frequent prepayments will substantially bring down the principal amount, thereby reducing the total interest. Also, usually, there are no extra charges for prepayment or early foreclosure.

Balance transfer

Transferring the entire principal amount of an outstanding loan to a lower-interest bank is known as a balance transfer. Existing home loan borrowers can opt for this when home loan interest is higher than other lenders even after prepayments.