A home loan is a big responsibility; you have to pay the loan EMIs regularly. In addition, these loans usually have long tenures, which means you have to pay the installments for a long time.
There might be times when you may feel overwhelmed with the loan burden and might want to reduce the monthly outflow. Even if this is not the case, any reduction in the EMI can help you save money which is always a welcome idea. This post focuses on six ways to reduce the EMI amount.
6 Ways Existing Home Loan Borrowers Can Reduce EMI Amount.
You can reduce your EMI burden; here are six ways to do so.
1. Balance Transfer
Home loan interest rates vary across lenders. It is possible to reduce your loan EMI by transferring your outstanding loan amount to a competitive lender that charges a lower interest.
You can use the PNB Housing home loan EMI calculator to compare the reduction in the EMI due to lower rates. Check your loan interest rate to assess if it is possible to get a lower rate in the current scenario.
2. Change the Interest Rate Regime
Banks have altered the interest rate regime several times in the last few years. July 2010 onwards, the loans were linked to the base rate instead of the Benchmark Prime Lending Rate (BPLR). April 2016, onwards floating rate loans were linked to the Marginal Cost of Funds Based Lending Rate (MCLR). After October 2019, the rates are linked to the External Benchmark Rate.
Check if your loan is still under the old regime; if yes, you may be paying a higher EMI. Shifting your loan to an EBR-linked loan can lower your EMIs.
3. Shift From A Fixed To Floating Rate
When applying for a home loan, you can choose a fixed or floating rate. If you have opted for a fixed rate, then it is likely that you are paying a higher rate. Fixed-rate loans are usually 1-2% higher than floating-rate loans. Check with your lender and, if the floating rates are lower, you can shift your loan to reduce your EMI burden.
4. Partial Prepayment
Lenders allow borrowers to prepay their loans partially without any penalty. If your loan is at a floating rate and you have spare funds, you can make a partial prepayment. Banks usually adjust the partial prepayment against the principal amount, which reduces the loan tenure. However, you can request the lender to adjust the EMI rather than reduce the loan term.
5. Loan Tenure Extension
Loan installments depend on the outstanding principal, interest rate, and loan term. A longer loan tenure will help you reduce your home loan. In case of financial distress, you can request your bank to extend the loan term, which can help you repay your dues with ease. With a PNB Housing home loan EMI calculator, you can calculate EMI reduction due to term extension.
6. Loan Restructuring
Due to the COVID pandemic, banks restructured loans as per the RBI guidelines. The 12-month moratorium for the loans will start expiring from the Q4 (Jan-Mar) FY 2022. As the third pandemic wave hits the country, the demand for restructuring loans may arise again. You can check with the lender about the same to reduce your EMIs.
Conclusion
When you apply for a home loan, it is essential to research well. After that, too, you need to keep yourself well informed and look for ways to reduce your loan burden, like the above six options.
