Opting for a home loan is one of the popular means of meeting your dream of becoming a homeowner. However, the proceeds size and higher repayment tenure consume a sizable portion of your disposable income, which often leaves you with extremely little for meeting your other important goals. Additionally, an upward trajectory of home loan interest rate can hamper your financial stability. Thus, in such cases knowing some tips to lower your home loan burden is an appropriate way to reduce your financial stress.
Have a look at some of the crucial tips to lower your home loan EMI burden:
For existing home loan borrowers:
- Opt for home loan balance transfer option and then an extension in your tenure
As higher repayment tenure results in lower loan EMI, extending your tenure can lead to a reduced burden on your EMI. However, loan repayment tenure extension with existing lenders is known as restructuring, which may negatively affect your credit score and your future credit eligibility. Instead, you must choose the home loan balance transfer route at lower housing interest rate and higher tenure. For example, suppose you took a home loan of Rs 45 lakh, 5 years back at 8 percent p.a. for a repayment tenure of 20 years with EMI of Rs 37,640. Currently, your home loan account has an outstanding amount of around Rs 39.39 lakh with tenure of 15 years left. Now, if you avail a home loan balance transfer option from another lender at 7 percent p.a. for the rest of the tenure of 15 years, your EMI will be down to Rs 35,405. In case if you avail a higher tenure of 25 years, your EMI will further come down to Rs 27,840.
However, as higher tenure results in higher interest amount outgo, you must try to choose the prepayment option whenever possible on availing surplus funds. Remember that, as the home loan balance transfer request is looked at as a kind of fresh home loan application by the new lender, you may be charged administrative fees, processing fees etc., during the balance transfer processing. Thus, factor in the linked costs before you avail the option for balance transfer. Go for it only if your savings on interest costs is extremely higher than the cost incurred on the balance transfer option.
For new home loan applicants:
- Select higher tenure
Selecting higher tenure for home loan when making your application will not just lower your overall EMI outgo but also result in an enhancement in your home loan eligibility. However, as higher tenure enhances your thorough interest cost on loan, you must consider choosing the prepayment option whenever you avail surplus money in future. Remember that for the floating home loan rate, RBI has disallowed lenders from levying prepayment charges while in the situation of fixed rate home loan, lenders might charge a prepayment fee. Remember to take help of an online home loan EMI calculator to understand your optimum loan EMI and tenure depending upon your capacity to repay.
- Choose higher down payment
As RBI permits lenders to fund up to 90 percent of the value of the property through home loan, you must arrange the remaining amount from your own pocket in the form of down payment. While you may always look to contribute lower down payment for home loan, remember choosing higher down payment is a better choice. Higher down payment results in reduced loan requirement, which results in lower interest outgo and EMI. As opting for higher down payment reduces the lender’s risk, it enhances your approval chances for home loan too. However, you should avoid making higher down payment by sacrificing your emergency fund or important investments. Doing this might propel you to take up expensive loans in future to fund your financial contingencies and life goals.
Conclusion
Applying for a home loan is one of the practical ways to avail adequate funds for buying your dream home. However, just holding appropriate documents required for home loan is not the only criteria to determine your eligibility and repayment capacity. As this loan is a long-term commitment, which spans up to 30 years, your finances may take a toll if you have not planned out in a better manner. The above listed measures aim at reducing your home loan burden, which you should abide by to lower your financial stress.
