For instance, a critical factor that will help you decide which lender to approach is the interest rate being charged on the loan. Not getting the lowest possible rate can prove costly. Sample this: Just a 0.5% difference in interest rate (7.5% instead of 7%) for a Rs 50 lakh loan can result in higher EMI outgo of Rs 3.64 lakh for a home loan with a tenure of 20 years.
This is why it is important to make sure you tick all the right boxes at the beginning itself. Here is 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 need to understand that lowest rate is not offered to all borrowers as it often comes with various terms and conditions. Therefore, you need to shortlist at least 5-7 lenders and then start checking their terms and conditions for the lowest interest rate. If you find a suitable lender then lower interest rate will help you reduce your EMI.
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Many lenders such as
, and offer their best rates to salaried customers, and they charge a higher rate to non-salaried customers. So, you need to compare the best rate that you can get for your profile. Moreover, 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 the loan jointly with your spouse you can get a better rate.
2. Pick the right property
Though you may have shortlisted a lender giving you the lowest interest rate suiting your profile, the lender may not approve the loan due to the property itself. Many lenders have negative list for types of properties and localities in which they do not extend loans. So, you need to check if the lender you plan on approaching will finance the property you want to buy. If the property is in the negative list, you may either have to go for the next best lender or fine tune your property selection in such a way that it meets the conditions of the lowest rate lender.
3. Arrange for higher downpayment
Most lenders give the lowest rate of interest to borrowers who keep the loan to value (LTV) ratio low by making higher downpayments. So, if you can make a downpayment of above 20-25%, you can get the lowest rate offered by the lender. So a higher downpayment not only reduces your EMI by keeping the outstanding amount low, it can also get you a lower interest rate on the loan.
|Reduce EMI with higher downpayment|
|Value of the house||Rs 35 lakh||Rs 35 lakh|
|Downpayment||Rs 5 lakh||Rs 7 lakh|
|LTV Ratio (%)||85.71%||80%|
|Home Loan||Rs 30 lakh||Rs 28 lakh|
|*SBI Term Home Loan Interest Rates|
4. Go for a longer tenure
Another option is to take a loan with a longer tenure. For instance, if you are taking a Rs 40 lakh home loan at 7.5% per annum interest rate with a 20-year tenure, your EMI will be Rs 32,224. However, if you go for a 25-year tenure the EMI comes down to Rs 29,560, and in case of a 30-year tenure the EMI will be Rs 27,969.
|Reduce EMI with higher tenure|
|Loan Amount||Rs 50 lakh|
|EMI (Tenure 10 years)||Rs 58,183|
|EMI (Tenure 15 years)||Rs 45,081|
|EMI (Tenure 20 years)||Rs 38,915|
|EMI (Tenure 25 years)||Rs 35,499|
|EMI (Tenure 30 years)||Rs 33,433|
|*SBI Term Home Loan Interest Rates|
However, longer the tenure of the loan, higher will be the total interest payout. So, this should be your last resort option. Moreover, the moment you can afford to pay a higher EMI amount, you should get the loan restructured and reduce the tenure, or start making partial prepayments.
5. Go for home saver loans
If you have fluctuating income and are looking for flexibility for some months when you will have to pay a lower EMI amount, then a home saver loan can be an option. These are similar to the overdraft facility, where your minimum obligation remains to pay the monthly interest only. So, in few months you can reduce your monthly payment to just the interest amount and whenever you are comfortable you can restart paying a higher amount to reduce the principal outstanding amount.
This can suit businessmen and professionals with cyclical income as they can pay higher amount when they have enough surplus to reduce interest cost and draw from the loan when they are short of funds.
However, do remember that these loans often come at higher interest rate, and you will end up paying 0.15 to 1% higher interest compared to a regular home loan.