5 ways to lower your home loan EMIs despite RBI holding the repo rates
Renegotiate your home loan interest with your existing lender
Step up your EMI amount regularly
Consider a home loan balance transfer
Switch to floating-rate interest loans
RBI governor Sanjay Malhotra announced yesterday that the repo rate will remain unchanged at 5.5%. This decision follows a total cut of 100 basis points in the repo rate this year, which has been great news for home loan borrowers, as they have seen their home loan EMIs (equated monthly instalments) come down significantly, as the banks passed on the benefits.While home loan borrowers, particularly those under the EBLR (external benchmark lending rate) regime, might not see any immediate drop in their EMIs from the latest decision, there are still ways to lower their monthly payments. ET Wealth shares some tips on how you can reduce your home loan EMIs.During the initial years of your home loan payment, a larger chunk of your EMI is directed towards interest rather than the principal. So, when you make a prepayment, it reduces your outstanding principal balance. And with that, your future interest payments also decrease. The sooner you prepay, the more you save.For instance, if you take a home loan of Rs 50,00,000 at an 8% annual interest rate for 10 years, you'll end up paying over Rs 22 lakh (specifically Rs 22,79,656) just in interest. But, if you make 2 pre-payments of Rs 4 lakh each during this time, your current EMI of Rs 60,664, could drop by Rs 10,120, bringing your new EMI down to Rs 50,544.Over the span of 10 years, this could lead to total interest savings of Rs 3,46,973.Additionally, prepayments can also shorten your loan tenure. With the same Rs 50 lakh loan, and two Rs 4 lakh prepayments, you could potentially reduce your EMI payment tenure by up to 25 months, which is over 2 years, assuming your EMI stays at Rs 60,664.This means your original 10-year tenure (120 months) would be slashed to just 95 months. A shorter loan tenure means lower interest payments. Calculations indicate that this reduction in tenure could save you as much as Rs 7,70,216 in interest.Says Shubham Gupta, CFA, co-founder of Growthvine Capital, 'Even small lump-sum payments towards your loan can help cut down your outstanding principal, which means lower EMIs going forward or a shorter loan tenure'.You may have started your home loan with a higher spread, and now, it is possible that the lender is rolling out an attractive rate for new borrowers. If this is the case, don't hesitate to ask your lender for that lower rate.Plus, if you have been a good borrower for years, you can totally use that to your advantage and request your current lender to lower the rate.And if you find other lenders offering you lower interest rates, you can leverage that to negotiate with your bank for a better deal. Lenders tend to offer better terms to those with strong credit profiles. So it is super important to periodically check how your current loan terms stack up against market options and maintain a healthy credit score.If you have recently received a bonus or have any surplus funds parked, you can use them to pay your home loan and bring down your overall liability. You can also choose to increase your EMI amount, i.e. step up your EMI amount every year or two years to reduce your outstanding loan balance. Explains Rakesh Malhotra, Founder and Chairman, PRIME Developments'With the RBI maintaining steady repo rates, homebuyers can still reduce EMIs through strategic measures. Negotiate with lenders for lower interest rates, leveraging a strong credit score. Make partial prepayments to cut the principal, reducing EMIs or tenure. Borrowers can also explore step-up EMI plans that start lower and align with income growth', he adds.RBI's stable repo rate offers homebuyers an opportunity to optimise their loans. Home loan borrowers can transfer their balance home loan to lenders who are offering lower interest rates.Adds Amit Jain, CMD, Arkade Developers , 'Even though the RBI has kept the repo rate steady at 5.5%, homebuyers still have ways to reduce their EMIs. Switching to repo-linked home loans like EBLR can help borrowers benefit from the recent rate cuts. Many are already securing rates below 8% through balance transfers or refinancing.'If other banks are offering better rates than what you're currently paying, you can consider switching your lender. A balance transfer can reduce both your EMI and the total interest over time.If you're currently on a fixed-rate home loan and the floating rates are lower, check if your bank allows you to switch. There may be a small fee, but it could be worth it in the long run. Generally, fixed-rate loans charge more interest as compared to floating-rate loans. However, floating interest rate loans are better suited for times where interest rates are on a downward trajectory.
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