Home loan repayment is a major commitment, and your home loan EMI can amount to a large portion of your income. While you calculate EMI for home loan repayment with a home loan calculator and select a longer tenor to keep your EMIs small, it’s best to try and reduce your home loan EMI through other means as well, especially if you’re financially in a tight spot.
To begin with, aim to secure the lowest home loan interest rate by maintaining a high CIBIL score. A low interest rate translates to a lower interest outflow and, in turn, lower EMIs. Besides this, there are several proven methods of reducing your home loan EMI. Read on to learn more.
Make a large down payment
When you take a home loan, your lender will finance up to 80–90% of the cost of the property depending on the loan value. You must make a down payment for the rest. Now, you can always choose to pay more than, say, 20% of the cost upfront. The advantage of such a payment is twofold. One, you are left with a smaller principal, which in itself reduces your home loan EMI. Next, the lending risk is lower, which helps you get a better home loan interest rate and, therefore, reduces your home loan EMI.
Part-prepay your home loan
Making a part-prepayment involves paying a portion of your home loan early. The advance is adjusted against the principal amount; as a result, the interest outflow reduces and so do the EMIs.
Plan your part-prepayments for the early stages of repayment as this is when the interest component of your EMIs is high and so, each part-prepayment can have a large effect.
Opt for a balance transfer
If you can get better borrowing terms from another lender, consider refinancing your loan. By switching to a new lender, you can get a lower interest rate and benefit from more cost-effective charges. Once you secure a lower rate, your interest payable and subsequently, EMIs reduce. When carrying out a balance transfer, check the costs involved as you don’t want an array of charges to wipe away your interest savings.
Convert a fixed-rate home loan to a floating-rate
With fixed interest rates, the lending rate is constant through the tenor. While there is stability in terms of your interest outgo, fixed interest rates are higher than floating interest rates. Moreover, during times when the policy rates are low or on a downward trend, floating rates go down and hence, switching to a floating-rate home loan can help you pay the smaller home loan EMIs.
Switch to a better interest rate regime
Floating interest rates are decided on the basis of an internal or external benchmark (such as the repo rate). Internal benchmarks lead to your interest rate being dependent on the lender’s internal mechanism. On the other hand, external benchmarks promise a faster and more transparent transmission of policy rate changes. Hence, having your home loan linked, for instance, to the repo rate can help you reduce your home loan EMI.
Negotiate for better loan terms
When you choose a lender with whom you have an existing relationship, you can leverage your track record to negotiate for a lower interest rate. This should ideally happen before the disbursal of the home loan. If you are already a home loan customer but paying a rate significantly higher than the current interest rates, you can talk to your lender and try to have your interest rate reduced.
Having considered the tactics you can use to reduce your home loan EMI, you can now go ahead and apply for a home loan that best meets your housing needs. Bajaj Housing Finance Limited, for instance, offers high-value funds at an attractive interest rate and for a long, flexible tenor through its Home Loan. You also benefit from their pre-approved offers, minimal documentation, doorstep service, and easy balance transfer facility.
To start today, apply online.
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