After multiple hikes in the repo rate in 2020, India’s present repo rate has been fixed to 4%. To boost the country’s economy, RBI decided to keep the repo rate unchanged while maintaining its “accommodative stance”.
Due to the effect of this decision, the Indian home loan market had witnessed massive changes last year and is anticipated to grow at a CAGR of 22% by the end of 2026.
In the last decade, repo rate is being at the lowest, and due to this, the interest rate on home loans have dropped at a tremendous rate during early 2021. If a borrower is still worried about their financial burden, they can choose strategic methods to reduce home loan EMI by following several factors.
With a rapid change in lending rates, there is an increased urge for acquiring own property among the borrowers. To make the borrowing experience affordable and reduce home loan EMI, one should adopt certain financial strategies that are discussed below:
Strategic ways to reduce your home loan EMI
Prospective borrowers can follow some tips described below, which help them to reduce their financial burden significantly.
- Choose extended tenor
If a borrower chooses a longer tenor when applying for a home loan, it would reduce the EMI amount and enhance loan eligibility. However, it is to be remembered that opting for a longer tenor will significantly increase the overall interest. You can negotiate with your financial lender to extend the repayment tenor. You can evaluate the exact amount of EMI and interest by using a home loan calculator before making an informed decision.
- Negotiate with a lender for better terms
Existing borrowers can ask their financial lenders to provide better repayment terms which will help further help them to reduce home loan EMI. But borrowers can only be successful in this negotiation if they can produce a good credit and repayment history. In simpler words, borrowers who have paid EMIs on time and have no record of loan default can get an advantage of getting their EMIs lower through negotiation.
Similarly, intending prospective borrowers with a high credit score can also try to negotiate with their lender for better repayment terms. They can further use the home loan eligibility calculator to check the loan amount they can avail.
Also, leading housing finance companies provide customers with lucrative offers that simplify the borrowing experience and prevent the hassle of document checking. Such exciting offers are available on other financial products such as home loan, loan against property etc. One can check their pre-approved loan offer by submitting their essential details.
- Increase down payment
According to RBI guidelines, financial institutions are allowed to fund 75-80% of the property’s value in the form of housing loan credit. The borrowers need to pay the remaining amount out of their pockets as a down payment. Most of the borrowers try to choose a minimum down payment, but opting for a higher down payment will allow borrowers to limit the principal amount, which will reduce home loan EMI and interest cost. It is to be remembered that making bigger down payments increases the chances of loan approval as it minimises the lender’s risk.
- Refinance your home loan amount
While availing the credit, you might have chosen a lender who is offering a certain home loan interest rate. Now, if you have found a new lender who is willingly offering a lower interest rate and flexible tenor, you must choose to refinance your remaining credit there.
For instance, suppose you have availed a home loan of Rs.35 lakh at an interest rate of 9.5% with a tenor of 22 years. You are currently paying an EMI of Rs.31,656. Now, you have an outstanding amount which is close to Rs.30.31 lakh with a repayment tenor of 15 years.
If you go for a home loan balance transfer to another lender, offering an 8.5% interest rate for the remaining tenor, your reduced EMI will be Rs.29,853. Also, if you opt for a longer tenor of 25 years, your EMI amount will come down to Rs.24,411. However, since choosing an extended tenor result in a higher interest rate, you can try to prepay the loan amount when you have adequate funds in the future.
Besides these factors, one of the most convenient ways to reduce home loan EMI is a thorough comparison among financial lenders. Prospective borrowers must do in-depth research regarding the prevailing interest rate offered by leading financial institutions and choose the one that suits their requirements.