Two of the key parameters to consider while opting for home loans are the rate of interest and the tenure of the loan. Basis these two components and the principal amount, the EMI can be calculated. EMI is the equitable monthly payment that you need to make for the loans that you have opted for. This amount takes into account both the interest and a principal component.
However, for many home loan borrowers, a major chunk of their salary or profits goes towards this EMI payment. Therefore, here we discuss the methods by which you can reduce the burden of home loan EMI.
Let’s Get Started!
1) Compare Home Loan Rates: The best and simple way is to opt for a lender / bank that charges a low-interest rate. You can carry out this exercise by comparing the home loan rates for various banks. Various websites provide detailed analysis regarding home loan rates, prepayment charges if any, the maximum amount of loan that we can subscribe to, etc. Therefore this method becomes one of the most handy while opting for home loans.
2) Take a Longer Repayment Period: Another easy method is to increase the repayment period of the home loan undertaken. Individuals, who have taken a loan at a comparatively younger age like in their mid-twenties, are at an advantage here. Increasing the number of months for repayment will decrease your monthly EMI payments
3) Increase Down Payment Amount: Making a higher down payment at the start of the loan will reduce the total amount of loan to be undertaken. The LTV ratio i.e. Loan to Value ratio is looked at to check the home loan eligibility criteria. Usually, banks finance up to 80%-85% of the Home Loan. Therefore, a good chunk of payment at the start will eventually reduce our monthly EMI payments
Previously banks used to set home loan rates basis the MCLR or the Marginal Cost of Lending Rates. However, the recent ruling by the Central Bank has mandated all banks to link home loans to Repo-rate based lending rate. Therefore, home loan borrowers will instantaneously get the benefit of lower interest rates. In the recent past, the RBI has already lowered the rates substantially (135 basis points in the current calendar year) and banks have to benchmark the new home loan rates based on the reduced rates. Hence borrowers can procure lower interest rates for such loans.
Over and above all the points discussed, you should check whether the lenders charge any fees for making prepayments on the loans. Always choose the plans that do not have a prepayment charge.
How to Calculate EMI?
Now you can easily assess the EMI you would have to pay for a particular loan amount using a tool that is freely available on groww a website, known as the EMI Calculator. Just enter the three values in the home loan EMI calculator.
1) Amount of Loan: This is the total amount of loan opted for by an individual. Interest is calculated on this amount;
2) Rate of Interest: This is the applicable loan rate that we need to pay. As the repayment happens periodically, the amount of interest component decreases;
3) Tenure of the Loan: This is the total time frame within which the equated monthly installments will be paid back
Based on the inputs for these three fields, your monthly EMI payment amount can be generated. You can check with the variables and obtain different values of EMI for different scenarios.
Conclusion
Just by making small adjustments in EMI, byways mentioned above, you can easily lessen the burden of an EMI. Use the loan EMI calculator freely to calculate monthly EMI payable, by making a variation in tenure and principal amount. Subsequently, you will arrive at an EMI value which will feel financially comfortable according to your situation.