In 2019, the Reserve Bank of India announced consecutive cuts in its repo rates, which ideally should have urged financial institutions to lower their lending rates for home loans and other advances. However, even with a repo rate cut of 50 basis points by the RBI and a consequent reduction in MCLR rate, many financial institutions have lowered their interest rates by only a small margin. This has led borrowers to seek other ways to reduce their house loan EMI.
To learn how to reduce the repayment amount, it is crucial for borrowers to know how to calculate house loan EMI. For instance, it is a common notion that increasing one’s loan tenure can help to reduce the EMI amount payable each month. But a longer tenure leads to an increase in the total cost of the advance, in terms of interest payments. Thus, while a tenure with smaller EMI might seem convenient, it leads borrowers to incur higher expense on their loan repayment.
Therefore, before learning how to reduce home loan EMI payments, individuals should calculate their EMI amount payable by using an online home loan calculator. These calculators provide the accurate repayment amount when individuals provide parameters like loan amount, rate of interest and tenure.
After calculating the EMI amount, individuals can look through the following ways to reduce their home loan EMI payment –
- Make a higher down payment
A down payment is an initial payment an individual has to make on the value of the property for purchase. When individuals make a higher down payment, they need to borrow a lower principal amount and consequently lower their interest payable. Thus, even though making a larger down payment might seem like a liability, it can help borrowers save money in the long run. However, before choosing to make a higher down payment, it is crucial for borrowers to learn how to calculate house loan EMI, to know their repayment liability on the amount borrowed.
- Home loan balance transfer
Few financial institutions, like Bajaj Finserv, offer the facility of home loan balance transfer that allows individuals to transfer their existing advance from one lender to another offering lower interest rates. A lower interest rate automatically reduces the borrower’s repayment liability. It also allows individuals to choose a lender offering the lowest home loan interest rates.
- Prepayment of advance
Prepaying the borrowed credits is one of the most effective ways of reducing EMI amount. Individuals with a sudden cash inflow or extra cash in hand can choose to prepay a portion of their loan amount in one go as a lump sum amount. Doing this will directly affect the principal amount payable and consequently, reduce the EMI and loan tenure. To avail the facility of loan prepayment, individuals should know how to calculate house loan EMI amount to know their repayment liability after prepaying a portion of their borrowed advance.
However, loan prepayment can also come with additional home loan fees and charges. It is crucial for individuals to check these charges before choosing to prepay their loan amount.
- Negotiate for lower interest rates
Individuals with a high credit score can choose to negotiate with their lender to avail further deduction in current home loan interest rates. Financial institutions can consider lowering interest rates for individuals who have been long-standing customers and have an impeccable record with borrowing credits.
In addition to this, individuals paying their EMI according to the base rate regime can shift to the MCLR regime to avail lower interest rates. However, they should first check the associated cost of shifting interest rate regimes before taking the decision.
With these few methods, individuals can lower their EMI amount payable against their borrowed advance. However, before selecting any of the above-mentioned methods, individuals should check the documents required for a home loan and other requisite details to ensure that these methods can be undertaken without any hassle.