Despite the economic slowdown last year, the Indian financial market has witnessed a significant growth of 76% in home loans in FY21. Moreover, this sector showed substantial growth within a year, from Rs.44,907 crore in 2020 to Rs.79,043 crore in 2021, due to its lower interest rates and affordable repayment terms.
To further increase the affordability of housing loans, borrowers should know how to reduce home loan EMI and tenor.
Ways to reduce home loan tenor
Financial institutions usually allow individuals to repay the loan amount for the maximum tenor of 25-30 years. Borrowers have the option to choose between short and long tenor. Selecting a shorter tenor will be beneficial for home loan borrowers despite the EMIs being on the higher side. With a longer tenor, the EMI amount is low, but the overall cost of borrowing increases significantly. Therefore, one must consider his/her repayment capacity before applying for an advance.
In this regard, one can use a home loan EMI calculator and select tenor per affordability.
Customers looking for ways to reduce their home loan tenor can consider these pointers and make considerable savings-
- Frequent prepayments
Prepayment is one of the best ways to reduce one’s home loan tenor. One can use additional funds to make prepayment towards his/her home loan. Since prepayment is directly connected with the principal amount, a higher prepayment will reduce the tenor and the overall cost of borrowing.
- Make a higher down payment
Individuals can make a higher down payment to enjoy short term tenor. However, this depends on an applicant’s financial affordability. Usually, lending institutions provide 80% to 85% of the loan value for the property. Borrowers need to pay the rest of the amount as a down payment. Therefore, if an individual makes a higher down payment, the principal amount reduces, and thereby she/he has to repay EMIs for a shorter period.
Ways to lower home loan EMI
- Opt for a home loan balance transfer
Existing borrowers can opt for a home loan balance transfer to another lender, promising competitive interest rates against easy eligibility parameters. The primary reason behind borrowers opting for this facility is lower interest rates. They get to choose a lender offering a lower home loan interest rate, which substantially lowers the EMIs, affecting the overall affordability of the loan.
- Maintain high CIBIL score
Having a higher CIBIL score will help an individual negotiate with lenders. One needs to ensure that they have zero default on EMI payment and a clean credit history. Lenders check the CIBIL score when they sanction a home loan.
A score of 750 and above may help an applicant negotiate for a better home loan interest rate with the lender. If satisfied, lenders may approve an affordable interest rate. Resultantly, the EMI amount also reduces.
- Switch from fixed to floating rate
If an individual has taken a home loan at a fixed interest rate, he or she may have to pay a higher interest rate throughout the tenor, even when the market rate is low. But with floating interest rates, individuals can enjoy a reduced rate for their loan amount as and when the market rate drops.
Home loan eligibility criteria
Applicants need to ensure that they meet all the eligibility criteria before apply for home loan. Though the eligibility criteria differ with lenders, the common parameters include-
For salaried individuals:
- The individual must have 3 years of working experience.
- Applicants must be residing citizens of India.
- He or she must be between 23-62 years of age.
Here are the criteria for salaried individuals:
- Individuals must have a business vintage of a minimum of 5 years.
- One has to be a residing citizen of India.
- The age of the applicant must be between 25-70 years.
Moreover, one should take note of the relevant documents before applying for a housing loan and meeting the eligibility criteria.
Many financial institutions extend pre-approved offers for eligible and existing borrowers. These offers are available on several financial products, such as home loans, loans against property etc., and further, expedite the loan application process. Individuals can check their pre-approved offers by providing their credentials, such as name and contact number.
By following how to reduce home loan tenor and EMIs, individuals can become burden-free at the earliest. However, meeting the eligibility criteria and providing relevant documents are crucial before applying for a home loan.