Purchasing your own home is an achievable dream today, with so many attractive loan plans and products available across several lenders. You can avail of a loan to purchase a house outright or to have it constructed. However, this could represent one of the largest liabilities that you take on, and perhaps one that will last for the longest period.
Banks are the most well-known of house loan providers, but there are plenty of other options available in the non-banking sector too. Housing finance companies (HFCs) specialize in this sector. Banks must comply with the guidelines laid out by the Reserve Bank of India, while HFCs have to follow the regulations mandated by the National Housing Bank.
An essential aspect of availing home loans is your eligibility. Most banks and HFCs have online eligibility calculators on their websites. This is a quick and convenient ready reckoner to check whether you qualify for a loan in the first place. Based on this, you can take your application forward.
Once you ensure that you are eligible for a home loan from a few banks or HFCs, you can compare interest rates and the EMI (equated monthly installment) payable towards repayment. Home loan interest rates may fluctuate periodically, so ensure that you have the latest information. Interest rate regimes are linked to the policies amended from time to time by the two governing bodies. There will be a difference between fixed and floating rates of interest charged by the institution. Your EMI is based on all these factors, including the tenure of the loan.
How To Reduce Your EMI
When you avail of a house loan it’s a wise move to conduct extensive research into several aspects. Your own ability to repay in the form of EMI’s is a crucial factor. Defaulting on your EMI is a major risk. You could be issued a legal notice to settle your dues within a stipulated time, your credit score plunges, your home may be possessed and auctioned off.
You can reduce your EMI by:
- Credit rating: Ensure that you maintain a healthy credit score. This allows the lender to treat you as a low-risk, reliable and stable borrower. Your EMI will consequently be much lower than if you have a poor credit score.
- Partial payments: It’s a smart move to make one or two partial payments in the year. If you and your spouse receive a yearly bonus, you can check with your lender if you can reduce your EMIs by making regular partial payments.
- Tenure: Some borrowers prefer a longer tenure though it means more interest, while others can bear a shorter loan period and would like to repay the loan as quickly as possible. Whatever your preference, ensure that you check your ability to make the monthly payments using the online EMI calculator.
- Review: Review your EMIs every year and revise them if you receive a salary hike so that you can add to the EMI by 5% at least. This will help to reduce the length of the loan and the interest.
- Floating vs Fixed: Interest rates fluctuate across banks and HFCs. In general, it’s wise to opt for floating rates rather than tie yourself down to a fixed rate, unless it is exceptionally attractive. This way you can take advantage of the changes as they happen.
- Down payment: If you can afford it, make a larger down payment that what’s required. This makes you more attractive to the lender and you can borrow a smaller sum, at a lower interest rate. Your EMIs will be cut down to a shorter time.
- Loan Transfer: You can transfer your home loan to another lender. This is done if you’ve been paying your EMIs regularly but have found another lender with a lower rate of interest. Make sure you get all the information about foreclosure and processing charges before you opt for home loan balance transfer. Some banks offer great deals such as a 2 or 3 EMI holiday, access to top-up loans and more.
- Talk to your bank or HFC: Though these institutions have fixed policies, there is always some room for negotiation. This works when you have maintained a longer and healthier relationship with a bank, you have a good credit score, positive track record of repayment, or your salary account is in this bank.
- Pre-Approved Loans: Your lender may offer you a pre-approved loan based on your credit scores and trustworthiness. These loans generally come with lower interest rates and EMIs.
- Overdraft: Check if your loan has an overdraft facility. This helps you to make additional payments to the loan and reduce the EMI. It’s a great way to make the best use of windfalls, gifts and extra money that you get.
Reducing your EMI gives you a better control on the loan and this means peace of mind, and a more comfortable, structured and organized way to manage your home loan.