Best Ways Existing Housing Loan Borrowers can Reduce Equated Monthly Instalments (EMI)

Upon closer examination, you may discover that you are paying higher equated monthly instalments (EMIs) on an existing housing loan when compared with other lenders. With so many financial institutions i.e. banks and housing finance companies, there are more chances of some lenders charging less interest rates.

Most applicants, in a haste to secure home loans, do not examine the lender’s terms and conditions. Due to this ignorance, they often pay more EMIs and this reduces their ability to cover other living expenses. This article will enlighten you on how to avoid paying high EMIs.

We strongly recommend that you compare housing loan interest rates and additional charges to know if you are paying more than expected. Read to learn how you can reduce the EMIs payable on your home loan.

5 Best Ways to Reduce Your Existing Housing Loan EMI

Below are five easy ways to reduce your housing loan EMI.

Request Better Terms and Conditions from Your Current Lender 

One of the ways by which you can lower the EMIs on your housing loan is through a series of negotiations with your current lender. However, you should know that the odds of getting a positive reaction depend on your relationship with the lender. Factors like your debt repayment record and credit score are what the lender considers. So, before doing this, ensure that you have a strong credit score and a clean credit record.

Make Frequent Part-Payments 

When you lower the principal amount on your housing loan through regular prepayments, this reduces the overall amount remaining.

If you wish, you can ask your lender to reduce your tenor instead of the EMIs whenever you make a part payment.

Switch from Fixed Interest Rate to Floating Interest Rate

If you are on the fixed interest system, you are likely to pay a higher interest rate. For example, if a housing loan that came with a floating interest was available at 9% interest, fixed-rate loans would come with an interest rate of around 10.5%.

Having opted for a fixed interest housing loan, you would continue paying interest at the value of 10.5%, especially during occasional repo rate cuts. Thanks to the cuts, your counterparts on a floating interest system would pay less than you, say 7%.

Today, interest rates for home loans are at an all-time low, thereby allowing more prospective borrowers to avail themselves of their desired loan amounts. So, it makes sense for you, being on a fixed interest rate, to switch to a floating interest rate. Note that this can be done with your existing lender or a new one.

Arrange for a Tenor Extension

By opting to extend the period within which you must repay your home loan, the EMIs will reduce. For example, if you have 10 years left with an outstanding on your home loan balance of Rs.40/lakhs at 7.5%, extending the tenor to 20 years can reduce your EMI by Rs.15,257. This option may not work for all borrowers, especially when you are near the retirement age.

You should also know that while you might get a tenor extension, your interest accumulates. The tenor extension is a short-term measure. If in a few years, you can afford to make a part payment or return to the old tenor, we advise that you do that.

Request a Moratorium from the Reserve Bank of India (RBI)

A moratorium is an endorsement by the RBI which permits your lender to temporarily suspend the payments of EMIs. Due to the negative effects of the pandemic, many borrowers have found it hard to make frequent payments towards their loans. So, if you are in the same situation, opting for a moratorium is a great plan.

This option is available on the condition that you should not have missed an EMI payment. Also, do note that while the moratorium is active, your interest grows. This will cause an increase in the remaining loan amount.

A Home Loan is Your Key to Financial Freedom

Gone are the days when a home loan could only serve as a means of acquiring a house, renovating a house, or constructing one. You can also invest in real estate and make huge profits, thanks to the home loan offers these days.