How to reduce your EMI for a home loan
With our banking system providing loans and other benefits to its customers, the dream of owning a car or a home is now not a distant reality. Loans are easily repaid in the form of an Equivalent Monthly Installment (EMI) deducted from the borrower’s monthly salary. The deduction takes place on a fixed date each month until the loan + interest is paid.
Each EMI consists of the payment of the principal (actual amount borrowed) and the interest on that amount during the entire term of the loan. In early years, a larger proportion of EMI is made up of interest payments on principal. As the loan matures, the interest component decreases and the principal amount forms a larger percentage of the monthly payment.
Our finances need a lot of careful consideration and we have to deal with EMI very smartly. Apart from managing monthly expenses and EMI, we also need to save for the future. Here are some ways you can reduce your EMI payments:
1) Plan to pay plus down payment: If you plan to buy a home, choose to make a large down payment on the property so that the principal amount is less. The interest payment is decided based on the principal amount, so it is always advisable to pay more as a down payment and ease the burden of monthly installments. The lower the principal, the lower the interest payment and the lower the EMI.
two) Go for a longer tenure: If you opt for a longer loan period, your EMI is reduced proportionally as your principal and interest are spread over a greater number of months. However, although the actual monthly output will be less, you will pay EMI over a longer period and you will pay interest over a longer period. So while your monthly charge may be less, you may end up paying more over the life of the loan.
3) Make a prepayment in advance: The most feasible way to reduce your EMI is to make an advance prepayment. Prepayment of the loan will affect the principal amount and significantly reduce the EMI. If the partial payment is made in the first months/years, it decreases the principal amount and saves the interest of the later payment.
4) Refinance the loan: If you think your bank is charging more interest, consider changing banks. A borrower is free to approach another bank that offers a lower interest rate to refinance the loan. But the difference should be enough to switch from one financial institution to another to make sure the costs aren’t more than the savings you’ll get with your new lender.
By following the above points, we are sure that you will try smart and make the best decision.
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