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The problem rose after the Reserve Bank of India removed limits to the charges that could be made on different counts and the banks started to make these charges arbitrarily. A loan may be taken in order to fulfill any life goal or finance an immediate need. However, one must remember that a loan is also an added expense, considering the interest which banks levy on the EMI payable.
Increasing the EMI amount yearly will reduce the tenure, interest rate, and EMIs too. There are several ways and techniques to help you reduce your EMIs and the interest rate of your home loan. These techniques are for borrowers who are going to take a loan for the first time or have already taken one.
Increase the amount of EMIs yearly
Instead of focusing on the minimum down payment, the borrower should try to contribute the maximum amount from his pocket. If you wish to reduce your EMI amount – be it to make room for other expenses, save more, or simply to reduce your overall interest outflow – there are a number of ways you can go about it. Mr P.N.C. Menon founded SOBHA Limited in 1995 with a clear vision to transform the way people perceive quality. Today, SOBHA is the most trusted brand and only backward integrated real estate player in the country. Among the basic dreams that people have, owning a house is probably the most sought after.
If you are facing some kind of financial stress and want to get relief by reducing the EMI of your home loan, you may consider extending the term of your loan. For example, if you have 10 years left on your outstanding home loan of Rs 40 lakh at 7.5%, extending the term to 20 years can help reduce your EMI by Rs 15,257. Some lending institutions have a clause in their home loan agreement that states that the customer has to furnish a written request to apply lower rate of interest as and when it changes.
How to Reduce Your Existing Home Loan EMI
Through this facility, you can deposit an additional amount at any point in time, which is apart from your EMI amount. You can withdraw this amount at any time, but keep in mind that doing so will increase the outstanding balance and thereby, the interest payments on your loan. If you regularly deposit additional payments in the overdraft facility of your home loan account , then your loan tenure and interest payments are reduced. Over the past years, there have been many changes in the way banks charge interest on loans. For instance, before July 1, 2010, all loans were linked to the Benchmark Prime Lending Rate which was then changed to the base rate from this date. After April 1, 2016 all floating rate loans of banks were linked to the Marginal Cost of Funds Based Lending Rate , which was then changed to External Benchmark Rate from October 1, 2019.
As a result, the term of the loan decreases and the loan is repaid faster. However, if you do not wish to reduce tenure, you can ask your lender to reduce your EMI after a substantial prepayment. Since home loans is a financial liability for many years, a borrower always looks for the time when he can prepay the principal amount and free himself from the EMI burden. Although, if your loan is on a floating rate, you can go for prepayment without any additional charges. But, if your loan is based on a fixed rate of interest, you will have to pay a prepayment charge which is usually between 1 to 5% of the principal amount. In the above example, by switching to a floating rate loan the borrower will save Rs 4,869 per month on EMIs and Rs 5.85 lakh on interest payment during remaining tenure.
Loan Against Property
If you get a competitive rate, a balance transfer can help lower your EMI. Though floating rate of interest is applicable to all the banks and will be applied to all the home loan borrowers, the rates vary from one bank to another. If you had taken out a fixed rate loan, chances are you would be paying a much higher interest rate throughout the life of your loan. For example, 5 years ago, while variable rate loan was available at 9% interest, fixed rate loans come with interest rates around 10.5%. While interest rates on the variable rate have come down to around 7%, fixed rate borrowers would still pay a higher interest rate of 10.5%.
Because the customer bears a portion of the cost of the item, the amount that the customer must borrow as a personal loan will be reduced as well. The principal amount borrowed by the customer is used to compute the personal loan's interest. As a result, the greater theinstant personal loanamount, the more interest you will have to pay and the higher your EMI would be. Hence, putting down a significant sum as a down payment is a prudent move. There are some loans which attract significantly high rates of interest, like credit card loans. Therefore, if you have taken a credit card loan, a personal loan and a home loan, it is advisable to pay off the credit card loan as soon as possible.
Compare Interest Rates Online
Bajaj Housing Finance also offers external benchmark linked home loans, such as repo rate linked interest rates. Paying a higher EMI in such a scenario would reduce the amount saved every month. While if someone increases the tenure of the loan, they can save the extra amount and use it for repaying another loan or can invest the same for a return that can balance out the increased interest burden. Home loan interest rates have increased since the RBI raised the repo rates in 2022.
Borrowers can also increase the EMI amount by 5 percent every year to reduce the interest repayment burden. They can align this increase with the increase in salary or on receiving any other annual bonus. When you make a prepayment, you pay a portion of the principal early, bringing down the overall outstanding amount, thereby reducing the EMI or the tenor eventually. If you shift your loan to an EBR-linked loan from BPLR, base rate or MCLR loan then chances are there of interest rate coming down along with EMI.
Wishfin is an authorized platform to check your CIBIL score by PAN card and get the credit report on your registered email ID. You have read the simple tips that can help you reduce your EMI on a home loan. Now, to help you understand the functioning, we have brought in some of the factors that affect your home loan EMI which you should know. Government policymakers expect the central bank to pause monetary tightening, with retail inflation sliding below 6%, the upper bound of the Reserve Bank of India’s target rate.
While increasing the loan tenure can decrease your EMI, it can translate to a larger amount of interest over the course of the loan tenure. Therefore, you should be very careful before extending your loan tenure and always weigh all the pros and cons before increasing the duration of the loan. If you have taken a home loan with a fixed rate of interest throughout your loan tenure, you can contact your lending institution and change it to floating rate of interest. Floating rate of interest for home loan fluctuates as per the market scenario. When the base rate offered by lenders changes, it automatically changes the floating rate of interest. In the MCLR regime, the Reserve Bank of India's allows banks to set their own MCLR based on their marginal cost of funds .
So a borrower at the age of 45 may not be able extend the tenure beyond 15 years. If you are facing any sort of financial stress and want to get some relief by reducing your home loan EMI, then you may consider extending the tenure of your loan. For instance, if you have 10 years left on your home loan outstanding of Rs 40 lakh at 7.5%, then extending the tenure to 20 years can help you reduce your EMI by Rs 15,257.
If you get a competitive rate, a balance transfer may help you bring down your EMI. Although a home loan is offered by many banks and housing finance companies, there is a big difference in the interest rate they charge. So there’s a good chance you’ll be paying a higher EMI simply because your loan isn’t from a competitive lender. If you haven’t compared your interest rate, now is a good time to do so and check if your lender is charging a higher rate, even under EBR. Since most home loans are variable rate and there is no penalty for transferring your loan, the only cost involved will therefore be the fees charged by the new lender.
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