EMI (Equated Monthly Instalment) is the regular give away for your home that is taken away from your earnings, every month, every year until the end of home loan tenure arrives. Being the key substantial outflow from your income, this might almost seem like something that is not entirely letting you live your life. Yet, just as your energy reduces with age, your interest component decreases on maturity, letting the principal amount overtake the great share in the loan. Too mathematical? We help you crack how to reduce EMI of home loan.
Yes, you could actually reduce the intensity of that monthly burden with a certain tips.
Save your energy for living your life and go easy on EMIs with these set of suggestions. Take the quickest peek on how to reduce EMI of home loan.
Note: There are some traces of beginner math included to help you relate!
KEY TIP: You could get the help of EMI calculator that accompanies every project description at Jain Housing. Because we know that it is one mandatory calculation to be reachable at hand!
(Find the EMI calculator towards the end of the page that makes your dream home journey complete)
How to reduce EMI of home loan?
Step#1. Understand the impact of tenure:
General math works like- Having a longer tenure for the loan will decrease the monthly amount paid. Yet, the hidden math here is that, with increased period, you’ll actually end up paying more. Since the interest builds up over the period of time, further increased by the changing interest rates along the years of tenure, it ends up being a lot higher than the predicted payments.
Monthly outgo ≠ Interest outgo
|SHORT TENURE||LONG TENURE|
|Higher EMI||Lower EMI|
|Total amount paid is low.||Total amount paid is high.|
While you’re wondering how to reduce EMI of homeloan, consider the other factors such as fluctuating interest rates, increasing money value etc. that are the reason for increased overall amount spent.
SMART TIP: Go for shorter tenure and higher down payment. Try fitting them into your salary. Though tough to begin with, it will prove its efficiently as the years pass.
Listen to the experts, just go for the Short Tenure!
#2. Choose EMI that complements your work nature:
Choose between Step-Up and Step-Down repayment.
Did you know that EMIs aren’t always standard and they could go through transition just as your career growth? Yes, Step Up and Step Down repayments increase and decrease with time respectively. The plan according to your future stability will entirely change the perception of ideas on how to reduce EMI of home loan.
Case 1: If you feel that you’re in the beginning stages of your career and your income would increase across time, opt for Step Up payment where the EMI gradually increases with time.
Case 2: If you feel your income might go down or may be utilised for other upcoming needs, save yourself from burden with Step down payment that gradually decreases with time.
Choose wise. Think twice.
#3. Bring it down with lump sum prepayment
“Winners begin early.” So begin with early prepayment.
When the option of prepayment comes with maturity proceeds from the insurance policies, it is just the right time to act! You could pay a part of your loan amount that would eventually bring down the home loan amount. While these are done as lumpsums, the principal amount falls drastically.
Let’s take a look at an illustration
|LOAN AMOUNT||TENURE||INTEREST||PREPAYMENT||SAVINGS up to||REDUCED TENURE up to|
|50 lacs||15 years||9%||1 lac||1.9 lacs||5 months|
You save up to 2% of the loan amount in this way.
SMART TIP: There are options for prepayment suggested by the bank. You could choose ‘to reduce EMI’ or ‘to reduce tenure’. Go for the prepayment option that is the most rewarding. By default, the bank decides to reduce the tenure. So before it does, express your choice and go with your response on how to reduce EMI of home loan.
#4. Try paying an extra EMI:
When the question “How to reduce EMI of homeloan” comes by, every act must take in consideration, the long term effects. Such act that brings long term benefits is additional EMI. In cases where lump sum prepayments aren’t possible, the benefit of paying an additional EMI payment would cover up for it to some extent. Moreover, for floating rate term loans, the prepayment charge is nil.
SMART TIP: You could pay ATLEAST one extra EMI, EVERY YEAR, to benefit from it.
#5. Prioritise Repayment on-time:
Paying EMIs on time has our disciplined payment procedure recorded in the bank, making us eligible for future considerations. Further, delayed payments bring in the penalties from lending institutions, while prolonged delays could get your home taken over by the lender. With on-time payments, you’d no more have to break your head on finding the answer on how to reduce EMI on home loan. It is already just a step away.
On-time EMI payment = Creditworthiness
SMART TIP: Make sure your wallet is heavy while the interest date is nearing. Try keeping it near your salary dates.
#6. Negotiate with your bank:
Making EMI payments on time definitely has its own set of perks. Having disciplined payment behaviour with your lender has you under good consideration. Your bank could consider your request and lower the interest rates. Now the bank will be the one telling you how to reduce EMI of home loan.
SMART TIP: Make sure you’ve predicted your future gains and the repayment capability.
#7. Transfer to the better
If all the above points don’t work for you, go for another lender.
It is natural to get fixed with the lender once the home loan is processed. But you could actually see beyond the lender, looking for the benefits in the other. Even the top banks offer the lowest rate of interest that could help you in getting an EMI that fits your budget. Moreover, other bank benefits such as prepayment options etc. also have their fair share of differences among different lenders.
SMART TIP: Calculate the prepayment cost with the existing lender to make sure that it wouldn’t outdo the savings gained from the new lender.
While all of the above tips would help in reduction of home loan EMIs, it all comes with the test of time. With amendments in bank policies that are approaching alongside the changing scenarios in banking sectors, it would be the wise to go for the builders who bring the most benefits to you through financial communications.
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AUTHOR PROFILE Akshaya Muralikumar is an avid architect turned writer who strives to explore the depth of details in the subjects across Construction, Architecture, Interior Design and Marketing. Being "An Architect of thoughts" she has been 'building' her thoughts across multiple web and print media.