How to Reduce Home Loan EMI?

The article covers the ideas you can use to reduce home loan EMI.

Yes, home loans are indeed the biggest liability of a man's life. Most of the time, people spend their whole life repaying the loan amount. This is why most borrowers try to reduce the home loan EMI or equated monthly installment. 

Here are the six most effective tips for reducing home loan EMI:

1. Have a Look at Your Interest Pricing Regime

It happens with most borrowers that they never tend to check the composition of the home loan EMI and how it is changing. Often, there are changes in the procedures of banks charging interest on loans, as rates are being changed by RBI. So, you must be updated with all the latest rules. You may not be aware of the new regime provided by RBI and may be paying much higher EMI in accordance with the old regime. If you can shift your loan to the new regime, there are good chances that you can reduce your home loan EMI. 

Can we be specific on what regime we are talking about? Are we talking about, Market linked rates? 

Also Read: 5 Reasons to Go for Home Loan Refinance

2. Balance transfer: Go for a New Lender with a Lower Interest Rates

When it comes to home loans, there are a bunch of banks and finance companies offering them. However, before choosing the lender, do your research, and go for the lender who offers the lowest interest rates. Even though you have already taken the loan, make a comparison of the interest rate charged by your lender with other lenders. If you find a suitable option with a low rate of interest, it is high time you should shift your loan to a new lender who is offering lower interest rates. The only cost involved in the whole process will be the fee charged by the new lender, which is totally worth it, as the deal will help you with profit in the long run. 

Related: Ever Heard of Loans That Help You Save Money?

3. Opt for Floating Rate 

If you have taken the home loan at a fixed rate, you may be paying a much higher rate of interest. Therefore, try to choose a floating rate home loan. The fixed-rate home loan usually charges a higher rate, which is around 10.5%, and this is 1-2% higher than the floating rate home loans. Often, there are situations where you may get a chance to reduce the home loan EMI, but it is not the case with fixed-rate loans, and you have to pay the same EMI throughout the loan tenure. 

4. Readjust Your EMI by Making Prepayment of The Home Loan

One of the best ways to reduce your home loan EMI is by partial prepayment. You have the choice of paying the loan amount before the end of the loan tenure. In this way, you can reduce the tenure of the loan, and you don't have to pay the EMIs for a longer time. However, if you don't wish to reduce the tenure and instead want to reduce the home loan EMI, you can avail of that option too. 

Also Read: When is it a good idea to take up a home loan?

5. Choose Tenure Extension

You may be going through some serious financial stress, and in that case, you may inform your lender about your current situation. If the bank feels that your reason is valid, they may extend your loan tenure. As your loan tenure is extended, the monthly installments are reduced, too; that is, you get to pay lower EMIs. The more the tenure extension, the lower your EMIs are.  However, talking of the negative impact of this option, you have to provide a higher interest amount overall due to the extension of tenure. 

6. Try out Loan Restructuring Offered by RBI

The Covid pandemic has brought unforeseen financial stress to many people and considering the seriousness of the situation, RBI has offered the benefit of loan restructuring to many borrowers. Due to the pandemic situation, they couldn't pay their EMIs, so RBI gave them the option of a moratorium, where they may skip the EMIs for a temporary period. However, in such cases, you will have to repay all the pending EMIs at a suitable repayment regime. Still, it can prove to be a great help in situations where you are already facing trouble in making two ends meet. Although, it is not valid at present times, but you should keep an eye, if any such situations arise again. 

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