You know that home loan EMIs are a huge amount and sometimes you need to think strategically to reduce home loan burden. You know we have written some strategic ways to reduce your home loan EMIs. Read carefully to understand in detail.
Prepayment involves paying an additional amount towards your loan principal, either periodically or as a lump sum, over and above your regular EMIs. This reduces the outstanding principal amount, which in turn reduces the interest payable on the loan. The prepayment can be two types such as:
Partial Prepayment: Partial prepayment means paying a part of your loan before it's due. This lowers the remaining balance and the total interest you'll pay. It can also help you shorten the loan term or reduce your monthly EMI amount.
Full Prepayment: Full prepayment means paying off the entire remaining loan amount before the loan term ends. It clears all your debt and stops any more interest charges. This can save you a lot of money in interest.
Import point to note: There might be some prepayment charges there, depending on lender to lender.
Annual Bonuses: Use your annual bonuses or any extra money you receive to make prepayments on your loan.
Periodic Prepayment: Make periodic prepayments whenever you have surplus funds.
Dedicated Savings: Save part of your monthly income in a separate account for making loan prepayments.
Increasing your down payment is another effective way to reduce your home loan EMIs. Here’s why this strategy works:
The down payment is the amount you pay from your own money when buying a home. The larger your down payment, the smaller the loan you need, which means lower monthly EMI payments.
Lower Loan Amount: A larger down payment means you need to borrow less money, which results in lower monthly EMI payments.
Better Loan Terms: Lenders may give you better interest rates and terms if you make a larger down payment.
Reduced Interest Burden: With a smaller loan amount, you pay less interest over time, which lowers your total financial burden.
Save Aggressively: Save money just for buying a home. Cut back on unneeded expenses and put that extra money into your down payment savings.
Invest Wisely: Put your down payment savings into high-yield savings accounts, fixed deposits, or mutual funds to help it grow.
Utilize Existing Assets: Think about using your current savings, fixed deposits, or selling things you don’t need to increase your down payment.
Important Note: While making a larger down payment can significantly reduce your EMIs, ensure you still have sufficient funds for other expenses and emergencies.
Refinancing your home loan at a lower interest rate can dramatically reduce your EMIs. Here’s how you can go about it:
Refinancing means getting a new loan to pay off your current home loan, usually at a lower interest rate. You can do this with your current lender or a new one offering better terms.
Lower EMIs: A reduced interest rate directly translates to lower monthly EMIs.
Interest Savings: You save on the total interest payable over the loan tenure.
Improved Loan Terms: Refinancing can also offer better loan terms, such as flexible repayment options.
Research and Compare: Compare interest rates and terms from different lenders. Try to find the lowest interest rate without giving up good terms.
Check Eligibility: Make sure you meet the eligibility criteria for refinancing, which may include credit score, loan-to-value ratio, and income requirements.
Calculate Costs: Factor in any processing fees, prepayment penalties on your existing loan, and other charges associated with refinancing.
Apply for Refinancing: When you find a good lender, apply for refinancing. Give them all the required documents and complete the approval process.
Close Existing Loan: Use the new loan to pay off your existing home loan. Start repaying the new loan at the reduced EMIs
Opting for a shorter loan tenure can help reduce your EMIs. Here’s why this approach works:
Loan tenure is the time you have to repay your loan. A longer tenure means lower monthly payments but more interest overall. A shorter tenure means higher monthly payments but less total interest.
Reduced Interest Payment: A shorter loan tenure means you pay off the loan quicker and pay less interest overall.
Quick Debt Clearance: You’ll be debt-free sooner, which allows you to use your money for other goals.
Potentially Lower Interest Rates: Some lenders offer lower interest rates for shorter tenure loans, further reducing your EMI burden.
Assess Financial Capability: Check your monthly income, expenses, and savings to figure out how much EMI you can comfortably pay.
Use EMI Calculators: Use online EMI calculators to see how much you’d pay each month for different loan periods. Choose the period that gives you the best balance between affordable EMIs and lower interest.
Consider Future Financial Plans: Consider your future financial goals and commitments when choosing the loan period. Make sure the EMI amount won’t put too much strain on your finances or affect your other goals.
Important Note: Shorter loan periods can save you money on interest, but make sure you can comfortably handle the higher EMIs without affecting your financial stability.
Wise investments can generate returns that can be used for partial prepayments, thereby reducing your EMIs. Here’s how to make smart investment choices:
Investing means putting money into different financial options to earn returns over time. You can use these returns to make partial prepayments on your home loan, which lowers the principal and monthly EMIs.
Wealth Accumulation: Investments can help you build wealth, giving you extra money to make prepayments on your loan.
Faster Loan Repayment: Making regular partial prepayments with money from investments can shorten your loan term and lower your EMIs.
Financial Growth: Investments can increase your wealth, helping you reach other financial goals while keeping up with your loan repayments.
Investment Options for Loan Prepayment
Systematic Investment Plan (SIP): SIPs in mutual funds let you invest a fixed amount regularly, which helps you build wealth over time.
Fixed Deposits: Fixed deposits provide guaranteed returns and can be a safe way to earn money for making prepayments.
Public Provident Fund (PPF): PPF is a long-term investment with tax benefits, making it a good choice for saving money for prepayments.
Recurring Deposits: Recurring deposits let you save a fixed amount regularly, which you can use for prepayments
Diversify Investments: Invest in different types of assets to lower risk and increase your returns.
Regular Monitoring: Keep an eye on your investments and adjust them if needed to make sure they meet your financial goals.
Seek Professional Advice: Think about talking to a financial advisor to get help with investment decisions based on your risk tolerance and financial goals.
Important Note: While investing can generate funds for prepayments, make sure your investment choices align with your risk tolerance and financial goals.
| Step | Details |
|---|---|
| Prepayment | Reduce principal amount through periodic or lump sum payments, resulting in lower EMIs. |
| Increase Down Payment | Make a larger down payment to reduce the loan amount and EMIs. |
| Refinance with Lower Rate | Refinance your loan at a lower interest rate to reduce EMIs. |
| Choose Shorter Tenure | Opt for a shorter loan tenure to reduce total interest payments and EMIs. |
| Invest Wisely | Use returns from investments to make partial prepayments, reducing the principal and EMIs. |
You can lower your home loan EMIs with the right strategies. Make prepayments, increase your down payment, refinance at a lower interest rate, choose a shorter loan term, and invest wisely to manage your home loan better and ease your financial burden.
How can EazyBankLoan help you in taking a loan? We understand the process of procuring a loan can be stressful. That is why we take care of your Loan application process, saving you time and hassle by handling the paperwork and communication with the loan providers.
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Prepayments reduce the principal amount, leading to lower interest payments and EMIs. They can also shorten the loan tenure, helping you become debt-free sooner.
It's advisable to save at least 20% of the home’s value as a down payment. A higher down payment can further reduce your loan amount and EMIs.
Before refinancing, compare interest rates, check for any refinancing costs, and ensure the overall savings justify the switch. Also, consider the loan terms and your eligibility.
A shorter loan tenure reduces the total interest paid but results in higher EMIs. Choose a tenure that balances manageable EMIs and interest savings based on your financial capability.
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