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Do You Know How You Can Reduce Home Loan EMI?

Although the Reserve Bank of India announced a loan moratorium in 2020 for 2 years, it only provides temporary relief to borrowers struggling to repay their existing debts due to the current economic downturn. Missing out on a single EMI payment can result in higher interest accrual with applicable penalties and hurt the creditworthiness of the borrower.

While existing borrowers can delay their loan repayment by a certain period through the moratorium, it does not reduce the EMI burden. Hence, it is high time borrowers, both new and existing ones, should plan a way out on how to reduce home loan EMI and ensure a seamless borrowing experience.

Ways to reduce home loan EMI

Choosing a lender who offers the most competitive interest rates is one of the obvious ways to reduce home loan EMIs at the very outset. Besides, both new and existing borrowers can also follow some simple tips that explain how to reduce home loan EMI.

       For new borrowers

Originations of ‘new to credit’ consumers in the home loan segment registered a y-o-y growth of 21.4% in August 2020.

These new borrowers can follow these tips below to lower their home loan EMI substantially.

i.                    Opt for a higher down payment

Depending on the property value, lenders set a Loan to Value or LTV ratio, determining the loan amount. For instance, if a property value is Rs.1 crore and the lender offers an LTV of 70%, the maximum loan amount one can avail is Rs.70 lakh, and the remaining amount needs to be settled as an initial down payment.

However, individuals can increase the down payment and opt for a lower loan amount to reduce the monthly instalments.

ii.                  Compare interest rates

New borrowers have the golden opportunity to compare lenders to get the best interest rates in the market. In this matter, they can also take the aid of a home loan calculator and estimate the EMIs payable against different interest rates.

Moreover, individuals with excellent credit profile can also negotiate for the lowest home loan interest rates for their home loan. It will eventually help in getting the most affordable instalment amount.

iii.                Choose a longer tenor

Individuals looking for the best way of how to reduce home loan EMI can also choose a longer tenor. Usually, a home loan comes with a tenor up to 20 years and borrowers can choose one that fits their repayment capacity.

For example, a borrower opts for a home loan of Rs.90 lakh with an interest rate of 7% for 15 years. In this instance, he/she has to pay an EMI of Rs.80,895. If that individual extends the tenor 5 years more, he/she has to pay an EMI of Rs.69,777.

Remember that while a longer tenor reduces the EMI payable, it increases the total interest payable. So, calculate carefully before choosing a tenor.

Apart from these, also look through other factors to ease the loan borrowing process.

In this regard, pre-approved offers provided by leading financial institutions can be extremely helpful. These pre-approved offers are available on various financial products, including home loan, loan against property, etc. Check your pre-approved offer by providing your name and contact number.

       For existing borrowers

Like new ones, existing borrowers can also relax their home loan EMI burden. Here are some of the tricks they can follow -

i.                    Consider home loan balance transfer

Interest rates may vary from one financial institution to another. Thus, existing borrowers can transfer their outstanding loan balance to a new lender offering lower interest rates and better terms of service.

Note: Try to opt for loan refinancing in the initial phase of the repayment tenor when the EMIs comprise mostly the interest component.

ii.                  Prepay regularly

Individuals can also make use of their surplus income/savings and opt for part-prepayment whenever possible. Borrowers can use incentives, maturity earned from a mutual fund, FDs, etc. It reduces the home loan EMI if they choose to keep the tenor unchanged. However, they also need to consider the prepayment charges in this matter.

These are some of the best possible answers to how to reduce home loan EMI for new or existing borrowers. Make sure to estimate the monthly instalments beforehand to manage the finances better.

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