Home loans serve as a suitable financing option for individuals who want to purchase their first residential property. Nevertheless, most individuals hesitate before opting for one due to the monthly liability they must meet as EMIs, which can be financially burdensome for many.
Consequently, individuals who are thinking of applying for a home loan can adopt the following steps to lower their home loan EMI as well for increased affordability –
- Make a sizeable down payment
As per the RBI guidelines, lenders can sanction only up to 90% of the total amount of the property as a home loan. Borrowers are required to fund the remaining portion of the property’s price on their own via a down payment.
Therefore, it is advisable to make a substantial down payment for your house purchase. It will reduce the loan amount and accordingly lower your home loan EMI. Moreover, a higher down payment also improves your eligibility for a home loan.
- Negotiate with your lending institution
You should maintain your loans and advances in a way that result in a desirable credit report and a high CIBIL score. It will open scope for negotiations with your selected lending institution regarding reducing the interest rates on a home loan. Additionally, you should know more about how a credit score can determine your housing loan EMI to make necessary adjustments to your credit habits.
You can also negotiate with your lender to extend your repayment period, which will reduce the home loan EMI.
Nonetheless, before opting for an extended repayment period, borrowers should keep in mind that it increases the overall interest payments as well. You can use a home EMI calculator to compute the housing loan EMI that you will be required to pay if you increase your repayment tenor.
To use a home loan installment calculator, you need to enter the following details –
- Loan amount
- Rate of interest
After you submit the details, the calculator will display the total outstanding loan amount, total interest payable and your EMIs.
- Go for a balance transfer –
If you are an existing home loan borrower, and your current lending institution cannot reduce the rates applicably, you should switch to a new lender offering more favorable home loan interest rates and terms.
Furthermore, if you are still paying interest rates on home loans linked to MCLR, then you should opt for a home loan balance transfer with a lending institution offering RLLR-linked interest rates on the housing finance.
Subsequently, not only will it result in a reduction of your home loan EMI, you will be able to save substantially on interest payment as well. Apart from reduced interest rates, there are other reasons to refinance your home loan now.
You can use a home loan balance transfer calculator to assess how much you will be able to save on refinancing your home loan. You need to enter the following details in the loan transfer calculator –
- Name of current financial institution
- Location of your home
- Loan starting month and year
- The total amount of your home loan
- Current repayment period
- Current home loan interest rates
- The interest rate charged by your new lender
After you submit the above information, the calculator will display the amount you will save on switching your home loan, the new loan amount that you are eligible for, and the top-up loan amount as additional funding over and above the balance.
Apart from top-up loans, some lending institutions also provide pre-approved offers to borrowers for a hassle-free and quick application procedure. Besides home loans, such offers can be availed on various other financial products such as loans against property. You can check your pre-approved offer by entering only a few details, such as your name and contact information.
- Opt to prepay your home loan
Financial institutions also allow borrowers to prepay their home loan outstanding amount in a lump sum at any time before the tenor’s end. It helps lower the total loan amount due to your lender. Accordingly, it either results in an EMI amount reduction for the remaining repayment period or a reduction in home loan tenor.
However, if you opt to prepay your home loan, you should keep in mind that the amount should be substantial enough to lower your home loan EMI.
You can also avail tax benefits on home loans that help you save substantially and reduce your total financial burden. Borrowers can claim such exemptions under the Income Tax Act for both the principal and interest component of their home loans.