5 Strategies to Manage High Home Loan EMIs Effectively

Your Home Loan interest rate is one of the key factors that will determine how easy or stressful it will be for you to repay your loan. High-interest rates translate into high EMIs as well as high-interest outgo. On the other hand, low-interest rates make the loan as well as its EMIs affordable.

In India, most lenders offer and most borrowers choose to avail of housing loans on floating interest rates which increase with respect to Repo Rate.  So, what does one do when your Home Loan EMIs become expensive? How to manage high Home Loan EMIs, if you were offered a high interest rate in the first place? This article answers this question in detail. 

5 Strategies to Manage High Home Loan EMIs Effectively

1.Talk to Your Lender

If your EMIs have suddenly gone up due to an increase in the Repo Rate and you are finding it difficult to repay them, talk to the lender about your situation and request a reduction in your Home Loan EMIs. If you have been a responsible borrower in the past, your lender will most probably consider your request. However, know that your lender will consider your request only if you have never missed an EMI payment in the past and your credit score is at least 750 or above. 

2.Consider Increasing Your Loan Tenure

Your Home Loan EMI depends on three variables: interest rate, loan tenure and the rate of interest. 

If your EMI has gone up due to a hike in the interest rates and clearing EMIs each month has become burdensome for you, you can make them affordable by increasing your loan tenure. However, keep in mind that when one increases their tenure, their EMIs go down but the total interest payout increases, which in turn, increases the cost of borrowing the loan. So, one must avail of this option only after careful planning and understanding all the pros and cons.

3.Consider Pre-Paying a Part of Your Loan

Lenders take a risk by lending money to borrowers, and they make up for the risk involved by charging interest on the loan. The interest is charged on the principal amount. Thus, when borrowers make prepayments or clear off a part of their loan by making a lump sum payment, lenders lose interest money. Therefore, until a few years ago, lenders used to charge hefty penalties on prepayments. 

Also Read: Factors to Keep in Mind When Prepaying Your Home Loan 

However, the RBI has now mandated that all individual borrowers on floating interest rate Home Loan can now make prepayments at no additional cost at any point in their loan journey. So, if your EMIs have jumped up and you have opted for the floating interest rate regime, you can consider reducing the principal amount by making a prepayment. This will also reduce your EMIs.

4.Assess and Re-assess Your Budget

If you are being forced to pay higher EMIs and there is no way for you to reduce them, go through your monthly budget and see what expenses cut you down. Use a Home Loan EMI Calculator to figure out your monthly EMI obligation and use the information to plan your monthly budget to make scope for your new EMIs.

5.Opt for a Home Loan Balance Transfer

Lastly, if nothing else works, you can consider opting for a Home Loan Balance Transfer.  Home loan Balance Transfer is a facility that borrowers can use to transfer their loan from one lender to another offering better terms and conditions, such as reduced interest rates, nil prepayment and foreclosure charges, etc. This is a highly beneficial facility. However, borrowers must know that it involves a fee, which is charged as a certain percentage of the loan amount and therefore, one must opt for this facility only after doing a cost-benefit analysis. In general, a home loan balance transfer proves beneficial only when opted for during the initial years of a loan.

People Also Read: How to Calculate Home Loan EMI?

Final Words

If your Home Loan EMIs have increased suddenly due to a certain reason, know that there is no reason to be worried about it. You can consider transferring your balance to another lender and enjoy lower interest rates at better terms. Borrowers can also extend their Home Loan tenure and repay the loan conveniently. Individual borrowers can opt for pre-payment or foreclosure of their Home Loan availed at a floating rate of interest without having to pay any additional charges.