Whether you have a running home loan or intend to apply for one, the EMI is always a matter of concern.
Home loans run in a couple of lakhs and run for a long term, so you will have to pay monthly instalments for a long time. Your loan may have been at a certain rate; with changes in the RBI repo rates, lenders may increase the interest rate, leading to an increase in your EMIs.
What can you do to deal with the higher EMIs? Read on to find out more.
5 Strategies To Manage High Home Loan EMIs
One of the simplest ways to manage an increase in your home loan EMIs is to review your monthly budget. When you apply for a loan, you plan your finances for the coming years keeping in mind your EMIs. An increase in the EMI can upset this planning.
Evaluate your expenses to asses which ones you can reduce or avoid; this will give you some additional liquidity to pay the increased instalment. A home loan calculator can help you plan your finances better by providing accurate estimates of your EMIs.
Negotiating with your lender can also help you lower your interest rate, which can help reduce the EMI burden. This is possible if you have a long relationship with the bank and have been a responsible borrower who has paid the dues on time.
A good credit score also helps in getting lower rates. If you have a healthy credit report, the lenders consider you a creditworthy borrower and will negotiate lower rates.
If you have the option of partial prepayment without any penalty, you can use this option to manage your EMIs. You can use surplus funds, like your bonus, to make small prepayments.
Even a single extra EMI yearly can reduce your overall loan burden.
The partial prepayment you make is adjusted towards the principal and reduces your monthly instalment.
EMIs depend on the principal, loan duration, and interest rate. If your EMI goes up due to a rate hike or you feel it is high and you struggle to pay, you can consider increasing the loan tenure.
A longer loan duration will reduce the instalment amount but will increase the overall debt cost. Weigh in on both aspects; reduced EMI burden vis-a-vis higher interest cost in the long run before you make a decision.
If your bank has hiked your loan rate, you can consider the balance transfer option to manage your EMI.
Balance refers to transferring the outstanding principal amount to another bank. The existing loan is closed, and the acquiring bank takes over your unpaid principal. A new loan account is opened, and you pay the new bank monthly instalments at a reduced rate.
Balance transfer of a loan may have certain costs; you should use a home loan EMI calculator to estimate the savings and compare them with the expenses you may incur to decide if it’s a viable choice.
A Few Things To Remember
When applying for a home loan, keep the following in mind:
- Opt for well-known and trusted financial institutions.
- Always compare different offers from different banks and NBFCs.
- Maintain a healthy credit score to get better loan rates and faster approval.
- When comparing lenders, pay attention to other costs, like processing fees and technical and legal charges.
If you are struggling with your EMIs, consider the above options to help you ease your burden. Remember, missing EMIs can lead to high penalties and charges and impact your credit score. Follow the strategies discuss here and manage your EMIs successfully!