How To Reduce Your Home Loan EMI

In India, the home loan market keeps growing year on year, why?Its all because of us. Yes!!! in India the moment you get into a job with a decent income it becomes your dream to buy a house. Whether you like it or not that how it works.

But, you don’t have enough money ?? don’t worry that’s why the banks are for. Banks work 24/7 to bring in new customers who will pay interest for the next 25 years.

And because of that, there are many real estate projects happening around, many are employed because of you. Yes, it is true you are helping the economy to grow. But are you growing ?? well !! who cares about it ??

So in order to fulfill your dreams or someone else dream you buy a house with a huge loan. okay, so what’s next ?? pay it for the next 25- 30 years yes, that’s the only option.

If you are planning to take a housing loan for 20-30 years, i advice you to read this

Why 20-30 Year Loan Is A Mistake?

If you have already taken a loan consider reading further.

I am going to share a little information so that, you can reduce your home loan EMI and live your life a little peacefully.

Knowing the interest options….

Before we get into the main picture I would like to give you an overview of certain important things.

Once you decide to take a loan, we all contact different banks and choose the bank which offers the least interest rate and other various options.

The interest rate depends on your credit score and your previous financial transactions, your job profile, and your loan amount.

Check your CBIL Score !!!!

Normally, your monthly EMI depends on your interest rate. Banks usually give you an option to take a fixed interest rate, or floating interest rate, or both. ( like half of your loan amount on the fixed interest rate and another half with floating interest rate )

A fixed interest rate means banks decide on your interest rate depending on the rate of interest from RBI’s. ( generally, banks lend you money by borrowing from RBI or the funds generated from accepting deposits from their account holders )

If you choose fixed interest rate , the rate will be constant till you repay your loan.

A floating interest rate means, your interest rate will change yearly according to the current housing loan interest rate. Normally during the floating interest rate option, the bankers keep the EMI fixed and reduce the tenure accordingly.

After April 2016 RBI found a new method called MCLR ( marginal cost of fund-based lending rate). Where banks will pass on the benefit of interest rate cuts to borrowers. Even though this method was in action banks tend to forget to pass on the benefits to the borrowers unless they make some noise.

Now, how to reduce your home loan EMI?

• If you have taken your loan under a fixed interest scheme and want to change to a floating scheme, all you can do is pay a nominal fee ( Normally 2% of your loan amount ) to the bank and transfer your loan to the desired scheme.
• You can do the same process to transfer your loan from floating to a fixed interest scheme.
• If your bank is objecting any of such transfer all you have to do is transfer your loan to the other bank. ( They call it taking over loans) .
• Banks are always looking for clients, so new banks will be ready to take over your loans at a service charge.
• There will be a service charge, but if you calculate the money you gonna save by switching to lower interest? it will be a huge saving.
• If you have signed up loans under MCLR all you need is to write a letter to the bank to apply the benefits to your loan.
• If you still feel the MCLR interest rate is high, you can still switch your loans to a new bank.
• These are some of the easy ways you can save a lot of money in 20-30 year loans.
• Always follow the news to know the current interest rate and negotiate with your bank to reduce your EMI or tenure.
• You can also do partial prepayment of the loan, which will reduce your home loan EMI.

2020 Pandemic situation…

In this current situation, RBI has reduced the housing loan interest. It is high time to change your housing loan to the current rate to 6.7%.

There will be people who have taken a loan at 10-14% with a fixed interest rate, all you have to do is call your bank and pay a minimum charge and convert to the current interest rate.

If banks are not giving heed to your request, all you need is to contact other banks who are willing to take over your loan.

If you have a good financial score, banks will take over your loan with ease.

Start a SIP to save interest on your home loan…

I know a lot of people would feel unbelievable, but this is purely how interest and compounding works.

So, consider you have taken a loan of Rs 40,00,000 for your housing loan at an interest rate of 8% for 30 years.

By the end of 30 years you would be paying Rs 1,05,66,211 (40,00,000 + 65,66,211) . Yes, you will pay more interest than your principal amount.

Now, by starting a small SIP you will actually recover your interest.

Let me show you how ?

When you start to pay your monthly EMI, you also start a SIP in diversified equity funds for 30 years.

The SIP amount should be 0.15% of your principal amount, which is 0.15% of Rs 40,00,00 is Rs 6000.

So at the end of 30 years you would have invested Rs 21,60,000 in SIP.

Considering the returns of SIP @ 12% and with the power of compounding, you would get a return of Rs 19,019,483

You can also consider investing a lesser amount and calculate your returns using a SIP calculator.

kindly share this information with your friends and relatives, sharing is caring !!!

Stay tuned!!!