After recently purchasing your dream home on a bank loan, you are now living the life that you always envisioned for yourself and your loved ones. But as the days pass and the EMIs on the home loan are repaid from your salary every month, you begin to have misgivings about the whole idea. Expenses continue to mount without a corresponding rise in income. Meanwhile, the EMI takes away a chunk of your salary, leaving you to grapple with the remainder for household expenses.
Don’t worry about this – there are ways to reduce your monthly EMI. Consider these –
#1 Explore home refinance options.
Home refinance is simply referred to as a ‘home loan transfer’. This is a process whereby you can opt to transfer your home loan from the existing lender to another bank, where the latter offers a lower rate of interest. By refinancing your home loan, you can capitalise on lowered market rates – and get a lower rate of interest on your loan. When the interest rate is reduced, the EMI is automatically reduced on the home loan. However, home refinance should be done after thoroughly studying the process (paperwork, costs involved, the new bank’s pre-payment procedures, etc.) If the processing and application costs outweigh the benefit of refinancing your home loan, then it is best left alone.
#2 Pre-pay periodically.
Apart from home refinance, another avenue that you must certainly explore is that of periodic pre-payment. This means that you repay incremental sums of money to the bank or financial institution over and above the monthly EMI. For example, if your EMI amount is Rs 25,000, you can choose to pay an extra Rs 15,000 or Rs 20,000 (or as much as you can spare) every month or every three months. This reduces the overall principal borrowing and the interest payable on it. In turn, it reduces your EMI and also the total amount of money you would repay to the bank if you only paid via EMIs.
#3 Increase the loan’s spread.
The ‘spread’ of the home loan is simply its tenure measured in terms of months. The shorter the tenure, the higher is the monthly EMI. If you have taken a home loan for 15 years and you find that the EMI burden is too high, then you can opt to increase the loan’s spread. Once the tenure increases, the loan is recalculated afresh and the monthly EMI automatically reduces. However, this option leaves you staring at more years of loan repayment, so choose it only if you find that the current EMI is too high for you to repay from your income.