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6 Smart Ways to Reduce Your Home Loan EMI

Investment in houses is one of the most significant amounts we spend, as it involves a considerable sum of money. However, home EMIs are among the highest outflows that take up the massive chunk of our monthly income.

The home EMI’s consume almost 30% to 40%, of our monthly income; hence, before taking EMIs, one needs to give considerable thought to it. It is always a good idea to look for ways to decrease the home loan EMI on priority regarding the home loan.

However, you should know that when you take an online housing loan, it depends on multiple factors such as the interest rate, repayment tenure, etc.

Here are some of the effective ways of how you can reduce the burden of paying higher amounts of EMI on your housing loan:

1. Go for Home Loans at Lower Interest Rate

One of the most significant and important factors of online home loans is the rate of interest, and it is based on the interest rate, that our EMI amount depends on. The comparison is simple, if the rate of interest is low, you will have to pay a lesser EMI, and if the rate of interest is high, you have to pay a higher EMI. Hence, if you are planning to avail a home loan, the first thing that you should check with your lender is the interest rate at which they are offering you the loan. Make sure not to procrastinate and compare all your options at length, before boiling down to one option. In the end, select the option that offers the least interest rate.

Just for instance, if lender A is charging an 8% interest rate while lender B is charging an 8.5% interest rate, you should go for option B. Here, the difference might be very less, but when you calculate it for the entire tenure, surely the difference will be huge.

2. Pay a Higher Amount of Down payment

Although you might be aware of the opposite of it, the reality is that making higher down payments will reduce your overall burden of paying EMIs while taking home loansThis means that paying a higher amount of down payment will simply reduce the loan’s principal amount. Let us understand the whole concept with an example. Suppose you purchase a house for 70 Lakhs INR, and you end up paying a down payment of 8 Lakhs as the down payment, then you will be required to pay a total of 72 Lakhs of EMI INR along with interest.

Hence, at the start, you might feel a little burden, but this option will be very feasible for you in the long run.

3. Repayments and Part-payment

In our workplace, we generally do get early incentives and bonuses over and above our monthly salaries. Many times, the investments we have done end up adding an extra chunk of money to our bank account. Hence, when we get this unexpected or unplanned income, we get all excited and spend all the extra funds we receive.

However, we are not suggesting that you save the entire chunk and not enjoy the extra funds. But it is always a better idea to give a thought to give a considerable amount of priority to the home loan.

Hence, one should think of making more prepayments or part-payments. The reason behind this is simple, our home loans consume a huge chunk of our monthly incomes, and by practicing this exercise, we could reduce a little monthly burden on our shoulders.

4. Balance Transfers

This is not a very common option used by the borrowers when going for home EMIs. However, one of the effective ways of reducing the EMIs towards home loans is simply transferring it to the other lender who intends to offer the same, but at a lower interest rate. If you think switching of lenders is not a viable option, you can switch the plan with the very same lender and this situation will also help you. However, there’s a big ‘But’ here, and that is, it requires your lender in the first place to have such a plan. There is no doubt that going for a changed lender could be a great idea as doing so can end up solving a huge chunk of money that you would have other paid on the higher interests.

Thus, an important thing to note here is that, before you end up doing this, it is vital that you, calculate the total cost that is involved in closing your loan with your existing lender. In case after your calculations, the sum of both of these is less than what you are eventually going to save, only then you should end up going for this option.

5. Opt for a Longer Tenure of Repayment

One of the essential facts one should know about while getting their hands-on online housing loan is that two elements, the tenue and EMI are inversely related to each other. That means, the longer your tenure will be to repay the loan, the lower will be the rate of interest. On the other hand, the shorter will be the tenure of your repayment of the loan, the higher the interest rate. So, if you want to keep your EMIs low, it makes sense to opt for a longer tenure of repayments. The idea behind this is that the financial institutions are certain about the flow of income for many years. Hence, they end up charging less for a longer tenure.

However, our suggestion is to only opt for longer tenure for repayments, when you are certain that you cannot pay higher EMIs. Otherwise, you can always go for shorter repayment tenures if you are flexible about the interest rate.

6. Pay an Extra EMI Each Year

All though at first you might take this as a burden to your monthly budget, but trust us, this might be the best advice you must have heard when it comes to paying off home EMIs in the longest time. Each year, try and pay at least one extra EMI. Initially, you might find it tough, but it would pay you handsomely in the long run, and we assure you about that. You should know that there are no prepayment charges for floating the rates of the term loans.

Just by paying one extra EMI each year, you will reduce a significant burden on your shoulders and reduce the outstanding principal amount. Also, the lending institution of yours will never complain if you pay one extra EMI each year. You might not realize the impact of this small act in the initial years, but this can be advantageous in the long run.

Ajeet Sharma, the founder of Financegab and a well-known name in the field of financial blogging. Blogging since 2017, he has the expertise and excellent knowledge about personal finance. Financegab is all about personal finance which aims to create awareness among people about personal finance and help them to make smart, well-informed financial decisions.


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