The home loan default amounts have piled up considerably over the years. One of the primary reasons behind is the recurring EMIs that have burdened borrowers significantly.
An overwhelming number of individuals opt for home loans to finance a house purchase. However, since the loan amounts are often high, a borrower’s financial health may be affected by the amount of EMIs payable. Consequently, they have a troubled time to maintain a steady home loan EMI schedule and fulfil other financial liabilities.
However, while EMIs are an inevitable part of the repayment plan for a home loan, it is possible to keep these liabilities in check. To do so, it has also become imperative to learn about the intricacies of the same first.
How is EMI on home loan calculated?
Home loan EMI is one of the most vital components of the loan repayment process. While an individual avails a home loan, he/she needs to repay the loan principal and interest via Equated Monthly Instalments or EMIs. Several factors also contribute to determining the EMIs of a home loan.
Nonetheless, borrowers can take the assistance of free online tools like a home loan EMI calculator and get an overall idea of how much they need to pay as a monthly repayable amount. It further helps in planning their financial liabilities accordingly.
Most top lending institutions provide home loan instalment calculator for borrowers to compute their EMIs accurately. All they need to do is enter a few essential details of the loan like the amount, tenure, interest rates, etc. to view the instalment amount on the screen in no time.
Nonetheless, following a few smart tips, you can reduce the burden of home loan EMI to some extent.
Tips to reduce home loan EMIs
As EMIs are monthly financial liabilities, it will be wiser to chalk out how much home loan EMI you can afford before deciding the loan amount. Doing so, borrowers will be able to manage the monthly expenses efficiently.
Nonetheless, the EMI amount depends on several aspects like interest rate, tenure, etc. Furthermore, EMIs may fair differently for both the new and existing borrowers. Hence, they need to strategise a different way out to reduce the same to a great extent.
Following are some of the tips that borrowers can consider while servicing a home loan.
1- For new borrowers
- Settle for lower interest rates
The home loan interest rates directly influence EMIs. Higher the interest rate, bigger the EMIs. Therefore, borrowers should look for lenders that offer lower interest rates with favourable repayment options. In such cases, the interest rates are determined after assessing a borrower’s credit score, income, age, and other crucial eligibility components.
- Choose a long tenure
Choosing a long tenure can effectively reduce home loan EMI, and also increase the loan eligibility. However, with longer tenure, the interest cost is likely to increase. Hence, borrowers should focus on making prepayments whenever they carry a financing surplus. Most top lending institutions offer home loan tenures of up to 240 months for convenient repayment.
They also provide pre-approved offers to their existing customers to ensure a simpler loan approval process. Besides home loans, such offers are available on other advances as well, including loans against property. You can check your pre-approved offer by entering some of the essential credentials like your name and contact number.
- Opt for a significant down payment
According to the RBI guidelines, any financial institution can fund up to 90% of the proposed property’s value as a home loan. The remainder has to be paid by the borrower from his/her personal funds.
Opting to make a higher down payment will thence reduce the loan amount, and consequently, result in more affordable EMIs. It also increases the loan eligibility of the borrower and lowers the risk of lenders as well.
2- For existing borrowers
- Prepay regularly
If you are already servicing a home loan, you should look for the avenues to gather funds and make prepayment at any time before the tenure ends. You can even liquidate your assets that are not necessary anymore. It will thus reduce the home loan EMI amount or the loan tenure. In either way, it will make repayment simpler and affordable.
- Opt for a home loan balance transfer
In case you are struggling to repay your existing home loan; you can gather information on how to reduce your EMIs with a home loan balance transfer. To initiate the process, you can look for lenders that offer loan transfer facility with the lowest interest rates. Accordingly, choose a lender and settle for an affordable EMI plan.
Following these smart tips, you can decrease your home loan EMI burden significantly. Nonetheless, you can try to borrow as per your financial ability and repay the loan before the tenure ends for a bolstered credit history.