Simple Ways to Reduce Your Home Loan EMI
Updated: Aug 28, 2022
Owning your dream home gives one immense joy and happiness. Most Indian families today depend on third-party financing, such as a home loan, to realise this aspiration.
However, a home is a massive financial undertaking and comes with a monthly outflow for anywhere between 10 to 30 years, depending on what repayment period you have agreed upon with your lender.
You may also want to look into ways to reduce home loan EMIs if your monthly obligation is quite large to begin with.
Top Ways to Reduce Home Loan EMI
Wondering how to reduce home loan EMI? Here are the 6 most effective ways that can help you achieve this goal.
1. Make Frequent Part Payments on your Home Loan:
Generally, home loans are accompanied by lengthy repayment tenures that can range from 10 to 30 years wherein you have to repay the loan via EMIs for a very long time.
Failing to do so can impact your credit profile adversely, and getting a loan in the future can become difficult. Default could even cause the lender to repossess the pledged property.
While you can opt for the shortest repayment period to get out of the loan as fast as possible, you can also pay more than your monthly EMI at certain times of the year to reduce your overall installment burden in the future. This is a highly recommended option if you come across extra income such as bonus or incentives from work (for salaried borrowers) or a good festive season (for self-employed borrowers). Use our part prepayment calculator to understand how making part prepayments contributes towards reducing your overall tenure and interest outgo.
2. Choose a Bigger Down-payment Amount:
As per the guidelines set by RBI, lenders cannot approve the total amount required to purchase the property. Only a specific percentage of the market value of the home will be granted as a home loan. The rest of the amount has to be paid by the borrower directly to the property developer. Generally, this varies between 10% to 20%.
If you are eligible to receive up to 90% of the home loan amount, you can opt for a bigger down-payment
amount greater than what is required as a way to reduce your monthly EMI going forward.
3. Balance Transfer of the Home Loan to Another Lender:
When you get your home loan approved by your current lender, it is possible that the interest rates were high. The good news is that you can find a better interest rate with l reputed lenders in the market like SMFG Grihashakti that offer home loans at attractive interest rates.
You can always avail the option of transferring the balance of your home loan to a new lending partner at a much more affordable rate of interest. This can considerably help lower your EMI burden on your home loan.
4. Opt for a Floating Rate of Interest:
If you are thinking of choosing the fixed rate of interest, then you must be prepared to shell out an extra 1% to 2% on your monthly installments. However, if you go with a floating rate of interest
from day one then it may prove to be more economical in the long run.
5. Choose a Longer Repayment Period:
If your goal is to keep your home loan instalments on the lower side, then it is best to opt for a longer repayment tenure. Most lending partners allow you to choose a period between 10, 15, 20, 25, and 30 years. You can use a home loan EMI calculator to select a tenure so that the resulting EMI doesn’t strain your budget.
You can go for the maximum period as that will ensure that your monthly instalments become more affordable and easy on your pocket.
6. Consider a Step Down EMI Plan:
While this may be a contradictory method to reduce your home loan EMI, it can be effective nonetheless. This is because you initially start paying a higher monthly installment amount to the lender and gradually decrease it as you near the end of your repayment term.
This works well for those who may be nearing retirement and may wish to not carry forward the higher EMI burden of a home loan in the second innings of their lives. Do check with your lender if this option is available to you as per their policy.
7. Renegotiating ROI
Renegotiating ROI can save you a considerable amount of money over the loan term. To have better chances of getting a lower interest rate, work on building a strong credit score and history. Have all the necessary documentation such as the loan agreement and proof of improved credit score for a smoother negotiating process.
Present your case (such as improved credit score or current market rates) to the lender, but remember that they are under no obligation to offer you a lower rate.
8. Refinance Your Home Loan
Refinancing home loans typically involve switching over to another lender who can offer lower interest rates or more flexible repayment options. Lower interest rates can lead to lower EMIs which can reduce the overall cost of borrowing the loan. To do this, it is important to keep an eye on the current interest rate trends.
The Bottom Line
When it is a question of how to reduce the loan amount and monthly EMIs, you must not leave any stone unturned.
Speak to a home loan expert from SMFG Grihashakti and get all insights on how to reduce home loan EMI, today.
Must Read: Tips to Reduce Your Home loan Interest Rate
FAQ's
What is the duration of my loan?
The duration of home loans is typically between 10 to 30 years. The duration of your loan will depend on several factors such as the total loan amount, interest rate, and the monthly payment amount.
What are the factors that determine the EMI of a loan?
The EMI of a loan is primarily affected by the principal loan amount, rate of interest, and the loan tenure. Additionally, the EMI may also be affected by other charges such as insurance and service fees.
How much down-payment should I pay to reduce my loan EMI?
There is no specific down-payment amount. However, the higher your down-payment, the more your EMI will be reduced. This is because a higher down-payment reduces the principal amount you need to borrow from the lender.
Which kind of interest rate gives a lower EMI - floating rate of interest or fixed rate of interest?
With fixed interest rates, you have a more predictable repayment structure. However, you won’t be able to benefit from any lower interest rates arising from market fluctuations. A floating interest rate from the start may prove to be more beneficial over the long term.
How can I reduce my EMI on a home loan?
Here are some ways you can reduce your home loan EMI
- Opt for part prepayments whenever possible
- Choose a bigger down-payment amount that reduces the principal amount, thereby reducing EMI
- Consider refinancing or home loan balance transfer to another lender offering lower interest rate
- Go for a floating interest rate that can lower interest rates due to market conditions
- Choose a longer repayment period to reduce the monthly payment burden
- Consider a step-down EMI plan
- Try to renegotiate a lower interest rate with your lender
Is there a way to reduce the home loan interest rate?
There are several ways to reduce home loan interest rate such as:
- Build a strong credit score and history
- Work towards a stable and consistent source of monthly income
- Research and compare different interest rates from lenders
- If you have an existing relationship with a lender, you may get preferential interest rates if you have an excellent repayment history.
How can I reduce the term of my home loan?
Here are some ways to reduce the term of your home loan:
- Increase your EMI amount to pay the principal amount faster
- Make lump sum payments whenever you acquire additional funds such as a salary bonus
- Try to negotiate a shorter loan term with your lender
- Consider home loan balance transfer to another lender with more flexible repayment options and lower interest rates.
Can I stop my home loan EMI for a few months?
You can get a moratorium period during which you do not have to pay EMIs. You can start the EMIs once this period is over. Alternatively, if you are facing a financial hardship, you can request for a grace period with your lender.
Disclaimer: *Please note that this article is for your knowledge only. Loans are disbursed at the sole discretion of SMFG Grihashakti. Final approval, loan terms, disbursal process, foreclosure charges and foreclosure process will be subject to SMFG Grihashakti’s policy at the time of loan application. If you wish to know more about our products and services, please contact us.