Ways to Reduce your Home Loan EMI
I have a home loan from LIC Housing Finance. Recently I got a mail from them stating they are increasing the Home Loan Interest Rates and my EMI would increase marginally. I am checking various ways where I can reduce my home loan EMI now. While I am the process of doing this, I thought, let me put my thoughts on how an individual can reduce home loan EMI. This article would provide 6 Ways to reduce your Home Loan EMI and save money.
What is Home Loan EMI?
Skip this section if you are aware of it.
Home Loan EMI (Equated Monthly Installments) is what you pay as home loan installment amount every month. This home loan installment is either a fixed amount for the entire tenure of the home loan or fixed for few years and increased later on or would change periodically based on lending rates. This would depend on the agreement what you have with the home loan provider.
What are various factors that would affect Home Loan EMI?
Before we get into how to reduce Home Loan EMI, one should know what factors would affect home loan EMI computation.
#1 – Home Loan Amount: Your Home Loan EMI would depend on how much home loan you are taking. Higher the loan amount, higher the EMI and vice versa.
#2 – Interest on Home Loan: Many of us might not be aware that even a small %age of higher interest on home loan, you may need to pay few additional lakhs on your home loan. Banks are offering home loans at 8.5% to 11%. Higher the interest, higher the EMI and vice versa.
#3 – Tenure: Earlier banks or financial institutions used to offer home loans for maximum of 20 years. Currently they are offering upto 30 years for eligible individuals. Higher the tenure, lower the EMI and vice versa.
6 Ways to Reduce your Home Loan EMI
Since we understood which parameter would impact your home loan EMI, let us jump and check how you can reduce your Home Loan EMI. One should note that only few tips might be useful to you. Consider the tip which is suitable and useful to you.
#1 – Get Home Loans that are available for Lowest Interest Rates
No brianer. If the interest rates are lower, you would pay less interest and your EMI is low. If you are hunting for home, keep an eye on the banks that are offering home loans at lowest interest rates. E.g. SBI is one of the best bank that offers home loans with cheaper interest. Yes, some of you might say that their customer support is weak. Even a small %age of 0.2% or 0.4% of interest rate change would make huge difference for your home loan interest and your EMI.
#2 – Longer repayment of home loan comes with low EMI
Earlier banks used to offer for home loans upto 20 years repayment period. Now banks and financial institutions are offering home loans upto 30 years. Higher the tenure of the loan repayment, lower the EMI. One should note that you would be paying higher interest amount (in rupee value) as the loan is not 20 years, but it is 25 or 30 years tenure. You can talk to lender and get affordable interest rates for such long duration. If you are at young age and has low income, taking a home loan for 25 or 30 years could be good idea as your EMI would be low.
#3 – Higher Down Payment – Lower Loan – Lower EMI
Banks offer home loans upto 90% of property value. Even if we have surplus money, since banks are offering higher amount, we would just go ahead and take higher loan. Instead, if you have surplus money with you, you can pay higher down payment and take lower home loan that can lower your EMI. Lower EMI means, more comfort in life. If the home loan is for self-occupied property and you want to get interest benefit upto Rs 2 Lakhs per annum (by showing loss from house property), you can calculate how much EMI you can ideally need to pay and take home loan. E.g. a home loan EMI per month of Rs 25,000 per month would translate to Rs 3 Lakhs per annum. If we consider home loan principal repayment upto Rs 1 Lakh, you can comfortably claim balance Rs 2 Lakhs as loss from house property, however it would also depend when you have taken the home loan. In initial years, interest would be high and later years, principal repayment would be high. Consider this parameter before you do any such calculations.
#4 – Refinance with another lender if your current home loan rates are high
Most of the banks are offering home loans based on MCLR Based method and the interest rates offered would change customer to customer. If you think that the home loan interest rates are high, check for lower interest rates lender and switch to that bank or financial institution. You may pay 0.5% or 1% processing fees as one time, but lowest interest rates would help to pay less interest and this could lower your Home Loan EMI.
#5 – Switch to lowest interest rates plan in Same lender
This could be surprise for you. This has happened to one of my friend. Bank or financial institution where you have taken home loan provides various home loan plans. Interest rates for such plans would differ. If you have taken home loan 5 years or 10 years back, you might be in old plan and might be paying highest interest rates. Visit your bank or financial institution where you have taken home loan and ask them to shift to lower interest rates. There could be conversion charges, but it is worth checking. Currently I am exploring this option for my home loan before trying for others.
#6 – Got bonus / Variable Pay – Do Part payment and reduce your Home Loan EMI
Guys/girls, don’t laugh at me. I know what you are thinking. In this recession where is the question of bonus or variable pay for employees. If at all, I repeat, if at all you get it, use it for part payment of your home loan. This way you can ask your lender either to reduce your EMI or reduce the tenure of your home loan.
Which method suits best to you to reduce Home Loan EMI?
Like I said above, there is hard rule what is best suitable to you. Go for one of the above options and see if you can lower your interest rates or home loan. Based on your interest rates and tenure and loan amount, your EMI can change.
All the best!!!
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Ways to Reduce your Home Loan EMI
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