Home loan borrowers can reduce EMI amount with 6 ways

2. Transfer your loan to a new lender
Though a home loan is offered by many banks and housing finance companies, there is a big difference in the interest rate that they charge. So, there is a good chance that you may be paying a higher EMI just because your loan is not from a competitive lender. If you have not compared your interest rate, then it is a high time that you do so and check if your lender is charging a higher rate even under EBR. Since most of the home loans are on floating rate basis and there is no penalty on shifting your loan, therefore the only cost involved will be the fee charged by new lender. If you get a competitive rate, a balance transfer may help you bring down your EMI.

3. Move from fixed to floating rate
If you had taken a fixed rate loan the chances are that you may be paying a much higher interest rate throughout your loan tenure. Lenders typically charge at least 1-2% higher rate on fixed rate loans. For instance, 5 years ago, if the floating rate loan was available at 9% interest, fixed rate loans come with interest rates of around 10.5%. And if the borrower opted for a fixed rate loan, he would be at a disadvantage in the current situation. While the interest rates on floating rate have come down to around 7%, fixed rate borrowers would still be paying higher interest rate of 10.5%.

As interest rates are currently at a historic low level, it may make sense for a fixed rate borrower to switch to a floating rate loan either with the same lender or with another lender, as they may find the shift beneficial despite paying a penalty on foreclosing a fixed rate loan. In the above example, by switching to a floating rate loan the borrower will save Rs 4,869 per month on EMIs and Rs 5.85 lakh on interest payment during remaining tenure.

4. Make partial prepayment and get the EMI adjusted
Floating rate home loan borrowers have great flexibility of making partial prepayment without any penalty which they can utilise to reduce their EMIs. Any partial prepayment has significant impact on your loan tenure as this amount is completely utilised towards bringing down the outstanding principal amount. As a result the tenure of the loan comes down and loan gets repaid faster. However, if you do not wish to reduce the tenure you can ask your lender to reduce your EMI after substantial prepayment.

5. Go for tenure extension
If you are facing any sort of financial stress and want to get some relief by reducing your home loan EMI, then you may consider extending the tenure of your loan. For instance, if you have 10 years left on your home loan outstanding of Rs 40 lakh at 7.5%, then extending the tenure to 20 years can help you reduce your EMI by Rs 15,257.

However, this option may not work for all borrowers especially the borrower who is close to retirement age. Most lenders offer maximum tenure till the borrower turns 60 years old. So a borrower at the age of 45 may not be able extend the tenure beyond 15 years.

Moreover, you also need to remember that longer the tenure of your loan, higher will be your interest outgo. While you can use the tenure extension option as short-term temporary measure, however as your finances improve, you should either restore the old tenure or make partial prepayment to accelerate the repayment.