A home loan is a preferred solution to buy the home of your choice. Relatively low home loan rate, higher repayment tenure and enticing offers make the option a popular instrument to fund your real estate purchase. However, when it is about home loan repayment, you require being smart about your cash outgo in the form of EMI towards home loan. If improperly planned, home loan EMIs might put a lot of stress on your budget and increase your overall loan cost. In case you are planning to avail a home loan or have already availed one, consider the listed tips to reduce your EMI burden.
- Make higher down payment
Lenders fund up to 75-90 percent of the property’s market value as home loan, while the remaining amount must be met by you as down payment. The value that lenders fund is called LTV (loan to value) ratio. As a thumb rule, higher down payment infers lower loan principal, which further reduces your EMI outgo. Moreover, your approval chances also instantly shoot up if you apply for a home loan with lower LTV. This is because your loan default risk falls considerably.
- Negotiate terms and conditions with the home loan lender
Lenders prefer lending you if you show a responsible repayment behavior. They know about your past repayment history by checking your credit score. A credit score of 750 and above is considered as good, which enhances lenders’ trust upon you. As an outcome, they may offer a lower home loan interest rate on the loan. In case, you have no credit record or hold a poor record, you may negotiate the terms with the lender with whom you share a long-lasting relationship.
- Plan out for a long repayment tenure with partial prepayment
A longer repayment tenure infers lower EMI, albeit higher overall interest outgo. Thus, before you avail this long-term credit, ensure to chalk out your liabilities and prepare a prepayment plan. Plan out to make partial prepayments based on your financial potential every 2-3 years and readjust the repayment tenure. In this way, your previous EMIs will be lowered, making it easier for you to adjust your monthly cash outgo depending upon your income.
- Share your EMI repayment burden with a co-applicant
In case your monthly outgo is straining your finances, you can opt for a joint loan. Remember, for a joint home loan, income of both the applicants is factored in to decide the eligibility chances for a home loan. Additionally, in case of a female joint applicant, you may avail the loan at a discounted housing loan interest rate.
Female home loan applicants or co-applicants are offered lower interest rates by most lenders to promote inclusion of women in finance.
Ending note
With prices of homes almost equaling years or decades of your savings, availing a home loan is one of the only options to realise your goal early in your work career. However, long repayment tenure and big-ticket amount size results in higher EMI outgo, leaving extremely little scope for your other goals. In such cases, it is crucial for you to know the best ways to reduce your home loan burden. Knowing them may allow you to cut down on your overall home loan cost.
