How to reduce your home loan EMI this festive season

Home loans are generally long-term obligations which carry on for 15-20 years or more. The EMI of Rs 20 lakh home loan generally varies between Rs 19,000 and Rs 22,000 per month. In this festive season multiple banks are offering attractive interest rates. Some offer interest rates lower than 6.5%. Union Bank offers 6.3% and Kotak Mahindra Bank offers 6.4%. Money9 gives you some tips to reduce your home loan EMI burden in this festive season.

Go for the lowest one

Home loan interest rates are currently at record low levels. If you have an existing home loan, then first check your interest rate. And then you can calculate how much extra money you are paying as EMI with comparison to the current lowest rates. Then proceed for transferring the loan.

Cost benefit

If you have taken a loan of Rs 30 lakh for a tenure of 20 years and you are paying an interest rate of 8%, the total interest outgo on this loan will be around Rs 30.23 lakh. Change in the interest rate can make a major difference, especially for this type of loan with longer tenures.

For instance, if the interest rate is 6.4%, and the loan amount and the tenure stay the same, the total interest outgo will decrease to Rs 23.26 lakh, which will save up to Rs 35,000 annually. Or close to Rs 3,000 a month.

Loan transfer

If you chalk out your plan, then go for a balance transfer. If you are paying around 7.3%, then still you are paying 100 basis points more than the current lowest rate. Then place a request for a loan transfer and expedite the process.

Additional cost

Processing fees, documentation charges, pre-payment charges and some other charges are often waived off by the lender itself time to time. Wait for that moment and try to grab those offers, as it would reduce your total pay-out burden substantially.

Expert’s view

Home loan is a long-term loan, it generally takes 15 years to 30 years to repay. So, if you reduce your EMI burden it would really help you a lot for a long time.

“If anyone saves even Rs 800 a month, for a tenure of 25 year he/she would save approximately Rs 2.5 lakh,” said Nilotpal Banerjee, an ex-banker and personal finance consultant from Kolkata.