The EMI is the most important component of your home loan, because it impacts your daily finances. Let’s understand its scope and how to reduce its monthly burden.
Every person wishes to buy their own home, but not every person has the temerity to take a sizeable home loan to pay for the house. But those who do, reap the rewards of taking housing finance to pay for a long-standing dream. And if you calculate the home loan EMI correctly using a housing loan calculator, you can also reduce the monthly outgo on the home loan and divert the savings towards other expenses.
Understanding the home loan EMI
The home loan EMI is influenced by the three components of the loan, namely:
* The principal, wherein the higher the loan amount, the higher the EMI will be.
* The tenure, wherein the shorter the tenure, the higher the EMI becomes.
* The interest, wherein the higher the interest, the higher is the EMI.
It naturally follows that by manipulating the above three factors, as also others like the loan application and processing charges, choosing a floating v/s fixed rate of interest, and making regular repayments (apart from monthly EMIs), you can reduce the overall loan burden. Reducing the EMI results in more of your monthly income being left over for other expenses. Let’s examine how to do this in the section below.
How to reduce the home loan EMI
First off, use a home loan EMI calculator to base your assumptions and arrive at accurate numbers for all calculations. The house loan EMI calculator can keep your computations on the right track and help you rejig the loan to suit your pocket.
* Start by calculating the projected EMI basis the rate of interest being charged on the loan. If the rate of interest is reduced, the EMI reduces as well. Now find the lowered EMI using the EMI calculator for home loan – leading housing finance companies offer interest rates between 8% to 9% on home loans. If the lender you have approached is offering a higher rate of interest, you should scout for another one. If you are already servicing a home loan, you might consider transferring it to another lender offering a lower rate of interest.
* If the loan tenure is a short one (lower than 15 years), then you might consider increasing the tenure. Doing so automatically increases the EMI spread (over months) but lowers the monthly EMI burden. So, if you have a 10-year home loan, increase it to 15 or 20 years and it will make a big difference to your outgo.
* Borrow less. If your principal borrowing is low, so will the EMI be. However, this means that you must spend more from your own resources to buy the house.
* Look for a floating rate of interest if you feel that banks and housing finance companies might reduce rates. But do remember that the interest will rise in response to rising rates in the future. At this point, you could consider switching to a fixed rate of interest if it is not much higher than the floating rate being offered. Use a home loan EMI calculator to find out the difference in EMI.