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16 JUNE, 2022
If you are planning to avail a home loan, the first thing you would probably like to know is the repayment amount. In financial terms, the amount you pay monthly towards a loan is called Equated Monthly Instalments or EMI. The higher your EMI, the more pressure it can put on your budget. Therefore, while you avail a home loan, you must know your EMI amount and how you can keep it within your budget. It would also help you to know the factors affecting your EMI. If you are availing a home loan, here are the factors that affect your EMI.
Factors affecting your home loan EMI
The duration in which you repay the loan is called tenure. The tenure you chose has a direct bearing on your EMIs. If you opt for a long tenure, your EMI is distributed over a longer duration. As a result, your EMI obligation monthly is less. Similarly, if you opt for a shorter tenure, your EMIs will be higher. Therefore, you must choose your tenure carefully, considering your affordability and budget while applying.
When there is any change in home loan interest rates, there can be a corresponding change in your EMI. Typically, this happens with a floating interest rate home loan. If the Reserve Bank of India (RBI) revises the repo rate, it can impact the interest rates and thus your EMI. So, it can be both negative and positive. For example, during the pandemic, there had been rate cuts due to which home loan interest rates were at an all-time low. When the interest rate increases, the lender can revise your tenure to accommodate the additional EMI amount. Also, the type of interest rate can impact your EMI. Fixed interest rates on home loans are slightly more expensive than the floating interest rate. So, if you have a fixed interest rate, your EMI could be higher.
Prepayment means paying off your loan before the loan tenure ends. When you pay off a part of your loan, the housing loan amount decreases, which can reduce your loan EMI too. However, if you choose to opt for prepayment, you must know that lenders often charge prepayment charges that can be a percentage of the loan amount. Experts believe you must check the prepayment clause while you avail the loan. Also, negotiate with the lender to reduce your prepayment penalty.
If you switch your loan from one lender to another, you can get lower interest rates and thus reduce your EMI. However, you must do a cost-benefit analysis to calculate savings from the home loan balance transfer. Similarly, paying a higher down payment can help you get a lower EMI.
These aforementioned factors are typically uniform across the lender you choose, and the year you avail the loan. Knowing about these factors can help you choose the right lender and tenure. Moreover, while you apply for a loan, it is best to check your EMI through a home loan calculator.
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