As per a recent financial report, the number of home loan accounts in India stood at 14.2 million, as of December 2019. Owing to rapid digitisation and the emergence of several HFCs, housing credit has become significantly popular among aspiring homeowners in recent years.
- Home loans account for nearly 50% of the credit portfolio of consumers in India
- According to reports by RBI, the total outstanding balance in the home loan segment stood at Rs.13.3 lakh crore, as of February 2020.
Availing a housing loan provides considerable financial flexibility in acquiring a residential property, particularly due to the extensive repayment period. It allows borrowers to repay the credit amount with relative ease.
However, without proper planning, repayment can also overbear an individual’s finances. To that end, several prospective borrowers utilise a home loan EMI calculator. Apart from that, you can also employ other measures to attenuate the EMI burden. Nonetheless, first, it’s essential to understand the building blocks of home loan installments.
What is home loan EMI?
Repayment of a home loan occurs across a specific tenor in fixed monthly installments or EMIs. When you avail a housing credit facility, the lending institution computes this amount based on the principal, interest rate, and repayment tenor. Each of these factors, thus, plays a crucial role in the determination of the amount you need to pay as EMIs. Naturally, the measures you can adopt to ensure low home loan EMI also revolves around these factors.
What are the ways to reduce the housing loan EMI burden?
- Opt for a longer tenor
The repayment period you choose is of heightened significance in regard to the EMI amount and overall cost of a loan. A prolonged tenor results in smaller EMIs. Conversely, the installment amount you need to pay goes up if you opt for a shorter tenor.
However, the cost of a loan, which primarily includes total interest payable, is less if the repayment period is short and vice versa.
Thus, it may be beneficial to ensure an EMI amount that allows you to maximize your financial benefits, whether it’s owing to smaller installments or less interest payable. You can use a house loan calculator to determine how much home loan EMI you can afford.
- Choose a higher down payment amount
A financial institution provides a home loan based on the loan-to-value ratio, which is a percentage of the property’s value you are purchasing. As per RBI mandate, a borrower needs to pay such remaining amount as a down payment. While you can pay the minimum amount and avail the rest as a loan, you may also choose to make a higher down payment.
- 90% – The loan-to-value ratio for home loans below Rs.30 lakh
That way, you can reduce the principal amount. With a low loan quantum, the cost of a loan will go down. Resultantly, the EMI you need to pay will also be more moderate. It is one of the most effective ways to reduce home loan tenor and EMI. You may utilise a home loan EMI calculator to reckon the down payment amount such that EMIs are in line with your affordability.
- Arrange for better terms on the existing loan
You can negotiate with your existing lending institution to lower the home loan interest rates. In case your credit score has improved since you availed the home loan initially, and possess a credible repayment history, the lender might revise the interest rates to reflect the same. This way, you can effectively reduce the installment amount on your housing loan.
- Increase EMI amount
In case you are a salaried individual, chances may be that your income has incremented over time. You can, thus, utilize the additional income to repay your home loan faster by opting for higher EMIs. Higher EMIs reduce the tenor, which, in turn, lowers the cost of a loan. A home loan EMI calculator may be of benefit to you when deciding the installment amount.
- Opt for a balance transfer
Reputed financial institutions provide the facility of a home loan balance transfer. Therein, you can refinance your existing loan with a different lender that’s levying a lower rate of interest. This way, you can attenuate the home loan burden by paying smaller installments.
However, merely lower interest rates do not suffice to ensure benefits from a home loan balance transfer. According to financial experts, if the new rate of interest is not lower by 0.5%, a home loan refinancing might not reap any monetary benefits. That’s because of the associated charges and costs of a balance transfer.
Moreover, a balance transfer is most fruitful financially in the initial stages. If the repayment period of your home loan ends within 5 years, a balance transfer may not give way to any financial advantage.
Nevertheless, when applying for a home loan, you might want to research lenders extensively before applying in order to maximize your benefits.
- Home loans grew year-on-year at a rate of 17%, as of February 2020.
Certain financial institutions provide pre-approved offers on loans to ascertain an expeditious and hassle-free process. These offers are available on an array of financial products, like a home loan, loan against property, etc. You may provide your name and mobile number to check your pre-approved offer.
Nonetheless, ensure that you prepare a thorough repayment plan before applying for a housing loan. To that end, you might utilize a home loan EMI calculator. Moreover, regulate home loan EMIs in tandem with your changing financial position during the course of repayment to ensure efficient management.