Home loan EMIs: Tips for new and existing borrowers to reduce burden

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Home loan allows consumers to realise their goal of owning a dream home. However, the long repayment tenure and large loan amount involved in home loan take up a sizeable portion of a borrower’s disposable income. This often leaves little or no room for investing in other financial goals. Also, as home loans are usually floating rate loans, the EMI burden can become worse when the interest rate starts rising.

Here are a few tips for those who feel burdened by their home loan EMIs: 

New home loan borrowers

Make higher contribution from own resources towards down payment

As the RBI allows lenders to finance up to 75-90% of a property’s value through home loan, applicants need to arrange the remaining amount of the property’s cost from their own resources for down payment or margin contribution. Though most of the borrowers try to contribute just the minimum down payment or margin amount, making higher down payment or margin contribution has its benefits. A reduced loan amount would lead to smaller EMIs and lower interest cost of the home loan. Making a higher margin contribution or down payment also reduces the credit risk for the lender, which in turn increases the possibility of your home loan approval at probably lower interest rates.

However, do not compromise your emergency fund and investments meant for your crucial financial goals to make higher contribution for the home property purchase or construction. Doing so may force you to borrow loans at higher interest rate in future to deal with financial emergencies or to meet crucial financial goals.

Compare loan offers from multiple lenders

It is always important to compare the home loan features offered by many lenders before zeroing in on a specific lender. The interest rate, processing fee, loan tenure and other associated cost of home loans can differ widely across different lenders based on their credit risk evaluation of loan applicants. For example, many lenders offer lower interest rates and other charges to those with credit score of 750 and above. They may also offer preferential interest rates to applicants employed with specified employers or having specified occupational profiles.

As lenders may offer preferential rates or terms and conditions to existing customers, those planning to avail a home loan should first approach the financial institutions with which they already have a consumer relationship. Then, they should visit the online financial marketplaces to compare the interest rates and other home loan features offered by other lenders. This strategy will help find lender charging lowest interest rate for optimal loan tenure and adequate loan amount available on their credit profile.

Opt for longer loan repayment tenure

Opting for a longer loan tenure will reduce your EMI, which in turn can even increase your loan eligibility due to higher EMI affordability. Hence, those planning to avail home loan should use online EMI calculators to find out the optimum loan repayment tenure on the basis of their repayment capacity. However, longer loan tenure can increase of the overall interest cost of the home loan. Hence, home loan borrowers should always try to prepay the loan whenever they have surplus funds in future.

Existing home loan borrowers

Opt for home loan balance transfer option

Home loan balance transfers allow existing home loan borrowers to transfer their home loans to other lenders offering lower interest rate and thereby, reduce their EMIs and overall interest cost. Those seeking to further reduce their EMIs can request the new lender to offer longer tenure than the residual tenure of the original home loan.

As a home loan balance transfer request is considered as a fresh loan application, the new lender might charge processing fee, administrative fee and other charges while processing the loan application. Hence, existing home loan borrowers should factor in the various costs associated with home loan balance transfer options. They should opt for it only if the savings in interest cost exceeds the balance transfer cost by a wide margin.

(The writer is Head of Home Loans, Paisabazaar.com. Views expressed are personal)