For example, the crucial factor that will help you decide which lender to contact is interest rate charged on the loan. Not having the lowest possible rate can be costly. Example: A difference in interest rate of only 0.5% (7.5% instead of 7%) for a 50 lakh loan may result in a higher interest rate. EMI expense 3.64 lakh on a 20-year home loan.
This is why it is important to make sure that you check all the required fields at the very beginning. This is how a new home loan borrower can lower the EMI amount.
1. Find the lowest interest rate
An online search can easily give you the interest rate charged by various banks and home finance companies. However, you should understand that the lowest rate is not offered to all borrowers, as it is often accompanied by different conditions. Hence, you need to shortlist at least 5-7 lenders and then start checking their terms and conditions for the minimum interest rate. If you find a suitable lender, a lower interest rate will help you lower your EMI.
Repo rate pegged home loan: Here are the repo rate pegged home loan interest rates.
Many lenders such as
, and offer their best rates to their paying clients, and they charge a higher rate to unpaid clients. So, you need to compare the best grade you can get for your profile. What’s more, the lowest rate is often offered to clients with excellent credit ratings, so you need to get your credit report and compare the best rate you can get according to your rating. Having a female borrower as a second applicant can also help you lower your interest rate by 0.05%. So if you take out the loan with your spouse, you can get a higher rate.
2. Choose the right property.
While you may have shortlisted a lender who will provide you with the lowest interest rate suitable for your profile, the lender may not approve the loan due to the property itself. Many lenders have a negative list of property types and localities in which they do not provide loans. So, you need to check if the lender you plan to go to will finance the property you want to buy. If the property is on the negative list, you may have to go to the next best lender or adjust your selection to match the terms of the lender with the lowest rate.
3. Negotiate a higher down payment.
Most lenders charge the lowest interest rate to borrowers who keep a loan of (LTV) low ratio due to higher advance payments. Thus, if you can make a down payment of more than 20-25%, you can get the lowest rate offered by the lender. Thus, a higher down payment not only lowers your EMI while keeping your outstanding amount low, but it can also lower your loan interest rate.
|Reduce EMI with a Higher Down Payment|
|House value||35 rupees||35 rupees|
|An initial fee||5 lakh rupees||7 lakh rupees|
|LTV Ratio (%)||85.71%||80%|
|Home loan||30 lakh rupees||28 rupees|
|* Interest rates on fixed-term home loan SBI|
4. Choose a longer term
Another option is to take out a loan for a longer term. For example, if you take out a home loan of Rs 40 million at 7.5% per annum with a tenure of 20 years, your EMI would be Rs 32,224. However, if you choose a 25-year term of office, the EMI will drop to Rs 29,560, and in the case of a 30-year tenure, the EMI will be Rs 27,969.
|Reduced EMI with longer lifespan|
|The value of the loan||50 rupees|
|EMI (Term of office 10 years)||Rs 58,183|
|EMI (Term 15 years)||Rs 45,081|
|EMI (Term of office 20 years)||Rs 38,915|
|EMI (Term 25 years)||Rs 35,499|
|EMI (Term of office 30 years)||Rs 33,433|
|* Interest rates on fixed-term home loan SBI|
However, the longer the loan term, the higher the total interest payment will be. So this should be your last option. Moreover, once you can afford to pay off the higher EMI amount, you should restructure the loan and shorten the tenure or start making partial payments.
5. Take out a home savings loan.
If you have a fluctuating income and are looking for flexibility for months when you have to pay a lower EMI amount, then a home savings loan option may be an option. They are like an overdraft where your minimum obligation is to pay only monthly interest. Thus, after a few months, you can reduce your monthly payment to the amount of interest, and at your convenience, you can renew the payment of a higher amount to reduce the outstanding principal.
This may work for businessmen and professionals with cyclical income, as they can pay a higher amount when they have enough surplus to lower interest costs and get a loan when they run out of funds.
However, remember that these loans often have a higher interest rate and you will end up paying 0.15-1% higher interest than a regular home loan.