10 ways to reduce your home loan EMI burden

May 28, 2023

By: Anagh Pal

Compare interest rates online

When taking a home loan, compare interest rates offered by different banks and housing finance companies online and choose the best rate available to you. Also consider any additional fees or charges.

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Maintain a good credit score

When you are taking a home loan, the interest rates are decided based on your credit score and a higher credit score would mean more competitive interest rates. A credit score over 750 is considered good.

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Choose a longer repayment tenure

For a ₹50 lakh loan at 9.5 percent interest rate, the EMI is ₹52,211, if the tenure is 15 years, and ₹46,607 if you increase the tenure to 20 years. However, your interest outgo goes up from about ₹44 lakh to about ₹62 lakh.

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Increase your loan tenure

If you are an existing borrower and your EMI has gone up due to a hike in interest rates, your loan tenure goes up to keep the EMI the same. You may choose this option, but your interest outgo will be higher.

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Re-negotiate interest rate with your bank

If your credit score has improved after you have taken the loan, you should try and renegotiate the interest with your lender and bring down your EMI outgo.

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Refinance your home loan

This basically means taking a new loan from another lender. As a thumb rule, consider refinancing only if you stand to gain at least 50 to 100 bps reduction on your current loan.

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Consider prepaying your loan

If you have enough funds, you may consider prepaying your loan. For instance, a 20-year loan can be repaid in 12 years if you pre-pay 5 percent of the loan balance once a year.

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Make use of overdraft facilities

A home loan overdraft lets you deposit funds into the loan account, over and above your monthly EMIs. The additional funds are treated as home loan prepayment and lets you reduce the interest payout and outstanding balance.

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Invest through SIPs

Investing in systematic investment plans (SIPs) can potentially generate returns that can be used to prepay the home loan, reducing the outstanding principal and thereby lowering the EMI amount.

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