16 FEBRUARY, 2022

When you buy a house with a home loan, lenders allow you to repay it in equal installments or equated monthly installments (EMI) that is comfortable for you. Experts suggest the following methods to get an affordable EMI on your home loan. These EMIs are based on your tenure, loan amount and interest rates. However, your loan EMI can significantly alter your monthly budget and affect your lifestyle. Therefore, you must get an EMI that is affordable and financially.

 

  • Opt for a balance transfer

Often, different lenders offer different home loan interest rates. There are high chances that you could be paying a higher EMI, while the other lenders are offering much lower rates. The best option is to switch the loan to a different lender to reduce your EMI.

If your loan is charged at a floating interest rate, you can save on prepayment charges. Opting for a balance transfer can help you reduce your interest outgo and your EMI amount. 

 

  • Review your interest type

Usually, borrowers forget about their loan once they have started repaying it. They are unaware of the loan updates and changes in interest rates. However, being cognizant of your loan can help you save money and get an affordable EMI. For example, if you have opted for a fixed interest rate, you probably would be paying a much higher amount than the floating interest rate, as the former is 1-2% higher than the latter. If repaying the loan at a fixed interest rate, you could switch to a floating interest home loan, considering the interest rates are at an all-time low currently. Moreover, you must also be aware of the prevalent interest rate regime. Is your loan charged at Benchmark Prime Lending Rate or Marginal Cost of Funds Based Lending Rate? If you switch to the prevalent regime you might be able to lower your home loan interest rate and thus your EMI.

 

  • Prepay the loan

Partial prepayments can significantly help you bring your EMI down. Making small partial prepayments can reduce your principal amount and total repayment value. You can either opt to reduce your tenure or EMI. When you reduce your tenure, your loan is repaid faster and you save on your interest outgo. However, you can keep the tenure unchanged and reduce your EMI value.

 

  • Ask for a loan restructure

If you were facing trouble in paying the EMIs of your home loan, it would be helpful to opt for a loan restructure. Ask your lender to increase your tenure to make your EMI affordable. However, you might not be able to extend your tenure if you are nearing retirement. If you are under financial stress, you can also opt for a moratorium if it's applicable for your loan.

 

A home loan spans for decades. Therefore, you must strive to get an EMI that does not put a financial burden on you. You can opt for these methods to reduce your EMI and pay your loan comfortably. Also, make sure you to use a home loan EMI calculator to compute your estimated EMIs.

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Disclaimer: This Article is for information purpose only. The views expressed in this Article do not necessarily constitute the views of Kotak Mahindra Bank Ltd. (“Bank”) or its employees. Bank make no warranty of any kind with respect to the completeness or accuracy of the material and articles contained in this Newsletter. The information contained in this Article is sourced from empaneled external experts for the benefit of the customers and it does not constitute legal advice from Kotak. Kotak, its directors, employees and the contributors shall not be responsible or liable for any damage or loss resulting from or arising due to reliance on or use of any information contained herein.