For example, a critical factor that will help you decide which lender to approach is the interest rate charged on the loan. Not getting the lowest possible rate can be costly. Example: An interest rate difference of only 0.5% (7.5% instead of 7%) for a loan of Rs 50 lakh may result in a higher EMI expense of Rs 3.64 lakh for a home loan for a period of 20 years.
That’s why it’s important to make sure you tick all the right boxes at the very beginning. Here’s how a new home loan borrower can lower their EMI amount.
1. Find the lowest interest rate
An online search can easily give you the interest rate charged by various banks and housing finance companies. However, you should understand that the lowest rate is not available to all borrowers as it often comes with various terms. Therefore, you should pre-screen at least 5-7 lenders and then start checking their terms and conditions for the lowest interest rate. If you find a suitable lender, a lower interest rate will help lower your EMI.
Read also: Home loan linked to the repo rate: Here are the interest rates for home loans linked to the repo rate
Many lenders like
, and offer their best rates to employee customers, and they charge a higher rate to non-employee customers. So you need to compare the best rate you can get for your profile. Additionally, the lowest rate is often offered to customers with excellent credit scores, so you should get your credit report and check the best rate you can get against your score. Having a female borrower as a co-applicant can also help you reduce your interest by 0.05%. So, if you take out the loan together with your spouse, you can get a better rate.
Also Read: A 50 Point Increase In Your Credit Score Can Save You So Much On Loan Interest Payment
2. Choose the right property
While you may have selected a lender that offers you the lowest interest rate that suits your profile, the lender may not approve the loan due to the property itself. Many lenders have a negative list of property types and locations in which they do not provide loans. So you need to check if the lender you plan to contact will finance the property you want to buy. If the property is on the negative list, you may need to choose the next best lender or narrow down your property selection so that it meets the terms of the lender at the lowest rate.
3. Plan for a higher down payment
Most lenders give the lowest interest rate to borrowers who keep the loan-to-value ratio (LTV) low by making higher down payments. So if you can make a down payment greater than 20-25%, you can get the lowest rate offered by the lender. So, a higher down payment not only lowers your IME by keeping the overdue amount low, but can also earn you a lower interest rate on the loan.
| Reduce EMI with a higher down payment | ||
| Home value | Rs 35 lakh | Rs 35 lakh |
| Advance payment | Rs 5 lakh | Rs 7 lakh |
| LTV ratio (%) | 85.71% | 80% |
| Mortgage loan | Rs 30 lakh | Rs 28 lakh |
| Interest rate* | 6.90% | 6.80% |
| Mandate | 20 | 20 |
| IEM | 23079 | 21374 |
| * SBI mortgage term interest rate | ||
4. Opt for a longer term
Another option is to take a loan with a longer term. For example, if you take out a home loan of Rs 40 lakh at an interest rate of 7.5% per annum with a term of 20 years, your EMI will be Rs 32,224. However, if you opt for a mandate of For 25 years, the IME drops to Rs 29,560, and in the case of a 30-year term, the EMI will be Rs 27,969.
| Reduce EMI with longer occupancy time | |
| Amount of the loan | Rs 50 lakh |
| Interest rate* | 7.05% |
| EMI (10-year term) | 58,183 rupees |
| EMI (15 years job) | Rs 45 081 |
| EMI (20-year term) | 38 915 rupees |
| EMI (25 years job) | 35,499 rupees |
| EMI (30 years profession) | 33 433 rupees |
| * SBI mortgage term interest rate | |
However, the longer the term of the loan, the higher the total interest payment will be. So this should be your last resort option. Also, as soon as you can afford to pay a higher EMI amount, you need to restructure the loan and reduce the tenure period, or start making partial prepayments.
5. Opt for home savings loans
If you have fluctuating income and are looking for flexibility for a few months when you have to pay a lower EMI amount, a home savings loan may be an option. These are similar to the overdraft facility, where your minimum obligation remains to pay monthly interest only. So in a few months you can lower your monthly payment to the interest amount and whenever you are comfortable you can start paying a higher amount again to reduce the outstanding principal amount.
It can be suitable for businessmen and professionals with cyclical income, as they can pay a higher amount when they have enough surplus to reduce the interest charges and draw on the loan when they run out of funds. .
However, keep in mind that these loans often come with a higher interest rate and you will end up paying 0.15 to 1% higher interest than a regular home loan.
