Manage Money

How to Reduce Home Loan EMI

Mr. Vikram’s Story

It was nearly midnight. The night was deep and all quiet, yet in his mind, Mr. Vikram was so worried that he couldn’t sleep a wink. Resigning himself to the fate that he possibly would not get to sleep tonight, he got up and called up his closest friend.
His friend was certainly surprised at getting a call so late at night. That was when Mr. Vikram said that he was worried about the high monthly EMI that’d start soon. He had just taken a personal finance home loan for moving to his dream home. His friend patiently understood his problem and offer a bit of sound advice.
A few months later, Mr. Vikram was saving nearly Rs. 5,000 per month. That same year, he saved a total of more than Rs. 50,000!
What brought about his huge change?
Let us show you the things he did!

Castles in the Air 

As adults, most of us dream of owning a fantastic dream home, a place that we can call our own. A place where we can raise a family. Perhaps these are things you are looking for when seeking a home, or perhaps you seek one where you can retire peacefully.
Purchasing a home is a considerable investment. In fact, it is one of the biggest investments in your life. Most people depend on low-interest loans for making such purchases, and thus they count on banks and housing finance companies. 
A home loan’s principal amount is higher than others, such as personal and car loans. Due to this, it can be a problem for a borrower to repay the home loan through EMIs.

What Determines Your Home Loan’s EMI?

The main determinants of your home loan’s EMI are:

  1. Payable interest rates

  2. Tenure of loan

Mr. Vikram’s problem was that his EMI payments exceeded 50% of his income. Being the single earner of his family, that was problematic. After the monthly payments, there was not sufficient money left to invest in other things and for paying monthly bills. Financial experts advise that the EMIs should always be less than 50% of your monthly income.

So What Magic Did MR. Vikram Spin? 

Interest is always calculated on the outstanding amount. Thus, when Mr. Vikram started to pay a higher EMI each month, he was able to pay off the loan faster. More importantly, his interest rate went down! Of course he had to hold back on investments and indulgences for a certain period, but it was definitely worth the sacrifice.
Here’s a mistake that a lot of people tend to make. It is true that buying a home is a good investment as it gives higher returns in the long term. However, it also means that the home loan borrower needs to choose a longer loan repayment period.
As you can understand, this has a negative compounding effect, as the borrower becomes stuck. He or she has to pay more when the overall interest was covered.
Do what Mr. Vikram decided to do.
Pick a shorter loan repayment duration. When you repay the loan faster, your interest rates decrease.

Here are the things that he did to save Rs. 50,000 in one year!
Mr. Vikram: 

  • compared rates online

  • made a bigger down payment 

  • prepaid part of the loan before the end of tenure, which reduced the interest rate  

  • increased his EMI payments annually with an increase of his net income per year

  • paid extra EMIs when he received increments and annual bonuses, which saved interest and aided in repaying loans faster

  • switched to MCLR, which has the benefit of lower interest rates

Mr. Vikram is glad that he made the choice to go the extra mile when it came to repaying his loan. Not only could he save a lot of money, but he can also close his loan earlier now.

To Sum Up

Will taking these steps help you in reducing your home loan interest rate? Certainly!

Want to know who else helps?

mymoneykarma helps you to save your hard-earned money on a home loan with this home loan emi calculator. Also, if you found this information useful, you’d also be glad to know that mymoneykarma offers home loans as well - that too at the lowest interest rates. Apply right away!

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