5 Ways New Home Loan Borrowers Can Reduce EMI Amount

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Taking out a home loan is an important decision. If you don’t do enough homework to focus on the best possible deal, it can get expensive because a mortgage is a long-term loan that often lasts between 15 and 20 years.

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 20-year mortgage loan.

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 conditions. 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 such as SBI,

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. In addition, the lowest rate is often offered to customers with excellent credit scores. So you need to 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, by the time you can afford to pay a higher EMI amount, you should get the loan restructured and reduce the term, 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, then 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 0.15-1% higher interest than a regular home loan.


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