A Home Loan is perhaps the biggest liability one takes on during their lifetime. It is also the loan with the longest tenor. Owing to this, most housing loan borrowers are on the lookout for ways to lower their equated monthly installment (EMI) outgo. Here are the top ways Home Loan borrowers can lower their EMIs.
1. Transfer your Existing Home Loan to a New Lender
Although a Home Loan in India is offered by many lenders, including housing finance firms, there’s a considerable difference in the Home Loan interest rate they charge. So, there’s a good possibility that you could be paying a higher EMI because your Home Loan isn’t from a competitive lender.
If you have not compared your interest rate yet, then it is high time that you do so, and check if your current lender is charging a higher Home Loan interest rate. As most Home Loans are borrowed on a floating rate basis and there are no penalties charged on shifting your housing loan from one lender to another, therefore the only cost involved will be the fee charged by the new lender. If you receive a competitive Home Loan rate, a Home Loan Balance Transfer may help bring down the EMI.
2. Use Home Loan Restructuring Option Provided By RBI
Restructuring of loans means making modifications to the existing loan terms such that it become easier for the borrower to manage the repayment of the loan principal and interest. It is a method used to avoid defaulting on current debts by negotiating interest rates. If you find yourself in financial distress, loan restructuring is a less expensive alternative to insolvency and can help you lower your EMIs.
Additional Read: How to Calculate Home Loan EMI
3. Make Partial Prepayment and Get the Home Loan EMI Adjusted
Floating-rate loan borrowers have greater flexibility in making partial prepayments without penalties, an advantage they can seamlessly utilize to lower Home Loan EMIs. A partial prepayment also has a significant impact on the Home Loan tenor as the amount is utilized toward reducing the outstanding Home Loan principal amount. As a result, the Home Loan tenor comes down and the loan gets paid off faster. However, if you do not wish to lower the Home Loan tenor, you may also ask your lender to lower the Home Loan EMI following a substantial prepayment.
4. Go for a Home Loan Tenor Extension
If you encounter financial stress and wish to seek relief by lowering your Home Loan EMI, then you might as well consider extending the Home Loan tenor. For example, if you have 10 years left on your Home Loan outstanding of say Rs.40 lakh at a Home Loan interest of 8.6%, then extending the Home Loan tenor to 20 years might help lower the Home Loan EMI by Rs.14,841.
However, the option might not apply to all, especially to the borrower who is nearing his/her retirement age. Most lending institutions offer a maximum Home Loan tenor until the borrower turns 60. Therefore, a borrower who is 45 years old may not get the option to extend the tenor beyond 15 years.
Besides, you must also keep in mind that the longer the Home Loan tenor, the higher will be the Home Loan interest outgo. While you can opt for the tenor extension option as a short-term and temporary measure, as your financial standing improves, you must either restore the old loan tenor or make partial loan prepayment and accelerate the Home Loan repayment.
Additional Read: Important Factors that Affect Your Home Loan Interest Rate
5. Move from Fixed to Floating Rate
Let’s say you had availed of a fixed-rate Home Loan, the chances are higher that you are paying a higher Home Loan interest rate and will continue to do so all through your loan tenor. Lenders generally charge at least a 1-2% higher rate on fixed-rate Home Loans.
For instance, five years back, if the floating rate Home Loan could be availed of at 9%, fixed-rate Home Loans came with an interest rate of about 10.5%. If the aspiring borrower had opted for a fixed-rate Home Loan, he’d be at a disadvantage given the scenario. While the interest rates on the floating rate have come down to about 8%, borrowers who had availed of the loan on a fixed-rate are still paying a higher interest rate of approximately 10.5%.
As Home Loan interest rates are at a historic low, it might even make sense for a fixed-rate Home Loan borrower to switch to a floating-rate housing loan either with the same Home Loan lender or with a new lender, as they might find the switch more advantageous despite paying a significant penalty on foreclosing a fixed-rate Home Loan.
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