Can you reduce the EMI of your home loan?

There are ways to reduce the burden of home loan EMIs even after you have signed on the dotted line. Here is how.

Nov 28, 2019 11:11 IST India Infoline News Service

Home loan
A home loan is a long term liability which extends on an average for 15 to 20 years. That is a fairly long time for you to manage your cash flows in a systematic manner. Quite often, you take on a home loan and then realize that the EMIs are getting unaffordable due to a variety of reasons. Your income growth may have been lower than anticipated or some additional commitments may have come along the way. Alternatively, the interest rates may have gone up and that would have made your EMI unaffordable. The good news is that you don’t have to panic. There are ways to reduce the burden of home loan EMIs even after you have signed on the dotted line. Here is how.

Are you getting the best deal in the market?
Ideally, comparative research is something you must do ahead of signing up for a home loan. Quite often, we tend to take a home loan from the same bank where there is an existing relationship. Today, there are loan aggregators that provide you with a clean comparison of the rates of interest offered by various banks and financers. While the rates may not differ too much, some banks are able to offer lower rates due to their low cost of funds. In this comparison, you must give due weightage to the hidden costs like processing charges, prepayment charges etc. Make a comparison and select the best loan suited to your needs.

You can extend the tenure of your home loan
This is the option that is available with most banks. The maximum tenure of a home loan is normally up to 25 years, depending on your age and income levels. In case, you have opted for a 15 year loan, you can negotiate with your bank to increase the tenure to 20 years or 25 years to substantially reduce the EMI burden. Of course, this extension will mean that over the life of the loan, you will end up paying more by way of interest. But, if that fits into your Section 24 exemption calculation, you can perfectly shift to a longer tenure. It will save you the EMI burden.

Talk to your bank about a balloon facility
A balloon is a lump sum payment that you can commit to the bank at the time of taking the loan. Let us take an example. Say, you have a 20 year home loan for Rs50 lakhs and your monthly EMI comes to Rs55,000. You earn an annual bonus of Rs3 lakhs. What you can do is to commit to the bank that you will pay Rs2 lakh as a balloon each year. This will substantially reduce your EMI burden as the balloon will also be factored into the calculations. This is a smart way to to put your bonus to good use.

Get the home loan refinanced by another bank
Normally, if you have an existing home loan and also have a good track record, you will be approached by a number of competing banks to shift your home loan. Remember, that home loan shifting has a cost. The existing lender could impose prepayment charges or exit loads that can be as steep as 3-4%. Also, the fresh loan will entail upfront processing charges. You must evaluate if the net effect is really beneficial for you. Only then you must take a decision to shift. This strategy helps when your existing financer is too rigid about helping you reduce your EMI burden.

Ask your existing banker for better terms
It is very likely that if a competitor is willing to offer you better terms and lower EMI, your existing bank will be willing to match the same. This is more so if you have a clean repayment track record. The better way out is to first talk to your bank manager and discuss your requirements in an elaborate fashion. Most banks are very keen not to lose good customers  so they will go out of the way to help customers. If your existing bank can give you a deal good enough, you don’t have to go through hassles of changing your loan originator. Ideally, for this you must first sit with your financial planner and work out the best possible solution and then approach the bank with your requirements.

In a competitive market, it is not too difficult to get the best deal on home loan EMIs. The key to such a facility is that you maintain a good repayment track record and a good CIBIL score. That makes things a lot easier.

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