5 Ways To Reduce Home Loans Burden

Applying for a home loan is the most practical way to get the necessary funds for purchasing your dream home. However, a home loan is a long-term financial product, and repaying the loan for 20-30 years may take a toll on your finances.You may miss repaying a few EMI instalments due to unforeseen circumstances such as sudden loss of job, illness, accident, etc. Missing the EMI payments can have a significant impact on your credit score and increase your liability toward the loan.But there are a few ways to reduce the burden of the home loan EMI repayment. Some of the tried and tested methods are discussed below:

The overall home loan cost greatly depends on the interest rate charged by the lender. If you have availed a loan of Rs. 50 lakhs for 20 years at 9% interest, your total interest payout for 20 years would approximately amount to Rs. 57 lakhs and the total repayment amount would be around Rs. 107 lakhs more than double of the amount borrowed.To reduce this burden, experts suggest prepaying a part of the loan. If you have disposable cash, or if you are expecting any lumpsum income, you can use the amount to prepay 5% - 10% of the principal amount. This would significantly reduce your interest payment. But, make sure that you prepay when the interest rate is falling and clear a large portion of the debt.

Often the lenders announce lucrative loan offers for borrowers who have been consistently repaying the amount. The lenders reward them by waiving off a certain number of EMIs during the fag end of the loan tenure.However, make sure that you are careful about availing such offers, you must ask the lender about how they will offset the discount; such loans may have higher interest than the regular loans.

Lastly, if you think your interest rate is not in line with the prevailing market condition, you can consider moving your loan to a different lender with a lower interest rate. Before you initiate the transfer, you can use the home eligibility calculator to determine the revised EMI and how you can benefit after paying the transfer fee (if any).

When you continue to repay your amount for 20 years or more (depending on your home loan tenure), over the years, your income may increase. You can allocate a small portion of the income hike towards the repayment of the loan by increasing the EMI.This will help you repay the loan faster and be debt-free. Increasing the EMI payment by 5% can have a significant impact in the long run.

This is another useful and definitive way to reduce your home loan repayment burden. The lenders may sometimes not lower the interest rate of your loan in line with changes in the government policies.For example, if the Reserve Bank of India cuts the repo rate by 50 basis points, the lender may not transfer the full benefits to you and pass only 20 or 30 basis points from the cut. You must be aware of the policy changes and negotiate with the lender to revise the loan interest rate as per the RBI policies.Taking a loan is not a big task but repaying the loan is. So, to have a seamless loan repayment process, and reduce your EMI burden, look for the options mentioned.

The information contained herein is generic in nature and is meant for educational purposes only. Nothing here is to be construed as an investment or financial or taxation advice nor to be considered as an invitation or solicitation or advertisement for any financial product. Readers are advised to exercise discretion and should seek independent professional advice prior to making any investment decision in relation to any financial product. Aditya Birla Capital Group is not liable for any decision arising out of the use of this information.