Real Estate

Paying Higher EMIs? Know How to Pay Less for Affordable Loan Repayment

As home loan interest rates drop to a record low after RBI’s subsequent rate cuts, many existing borrowers are looking to reduce their EMIs profitably. Home loans provide one of the highest credit values of up to Rs.3.5 crore, accounting for a sizeable chunk of monthly expenses. Higher outflows per month further pose a challenge during cash flow disruptions, and hence, weigh down on the pocket.

  • In general, 30% to 40% of the total monthly budget goes towards loan repayment. 

When willing to bring down the high EMIs on your existing housing loan, here are two effective strategies to pay less. 

  • Negotiate with your lender

Customers who have maintained a healthy relationship with their lending organisations remain on the greener side of a negotiation involving the terms of lending. Increased lender reliability thus endows them with a power to negotiate for revised service terms, helping them procure lesser rates of interest.

Alternatively, you can extend the repayment tenure to up to 20 years for smaller EMIs on your home loan. However, this shall also increase the total cost of the borrowing as interests are levied for a longer span. It is thus advisable to go for this choice only if you can pay for it without straining your finances.

For example –

Consider an amount of Rs.30 lakh avail at the home loan interest of 7%. 

  • If you choose a tenure of 15 years, the EMIs per month will be Rs.27,810, and the total cost of loan stands at Rs.31,41,900. 
  • If you extend the tenure to 20 years, the EMIs stand at Rs.24,168 but the total repayment liability goes up to Rs.31,87,132.
  • Again, with a tenure of 10 years, the EMIs will increase to Rs. 35,611. However, the total cost will be Rs.30,97,088. 

As a borrower looking forward to negotiation, make a prior assessment of your repayment capability and financial commitments before approaching. Here, you can use an online loan EMI calculator for a precise evaluation of the total interest payable, total payment (principal + interest) and EMIs. Make sure to keep track of the essential factors before doing a home loan balance transfer.

  • Refinance the outstanding home loan

The Indian financial market offers the best conveniences to borrowers, one of those being refinancing. If you are paying higher loan instalments every month, you can refinance, i.e., transfer the outstanding loan amount to a new lender who offers a lower home loan interest rate. Both the process and the documents required for home loan balance transfer are minimal.

As lenders usually offer different MCLR-based interest rates to customers, you can opt for this balance transfer facility easily.

Note that MCLR or Marginal Cost of Funds based Lending Rate is an internal benchmark set by lending institutions based on loan tenures. They cannot sanction any credit below this minimum rate of interest. Recently, in October 2019, RBI has introduced the RLLR regime, which is linked to its repo rates, thus, reducing the interest rates further. This regime ensures quick transmission of the rate changes to customers.

Although several non-banking financial companies do not come within the purview of these regimes, you can avail their balance transfer facility at attractive rates. Some of the benefits tagged along are:

  1. Lower rate of interest, and thus, lower EMIs.
  2. Zero prepayment and foreclosure charges.
  3. Customised insurance plans.
  4. Easy access and management to home loan account online.

Some HFCs additionally offer top-up loans of up to Rs.50 lakh along with the balance transfer facility. Instead of availing fresh credit and going through lengthy documentation, you can utilise this extra fund on your housing loan without any restrictions or paperwork.

Furthermore, reputed lenders might give pre-approved offers on home loans, loans against property, and a host of other financial products or services. Such offers are tailored for existing customers to not only simplify the loan availing process but also make it less time-consuming. You can check your pre-approved offer online by providing a few details only. 

Tax benefits on home loan balance transfer 

According to the Income Tax Act of India, the balance transfer facility qualifies for exclusive home loan interest tax benefit if utilise the availed top-up loans appropriately.

  • Section 24B allows borrowers to avail up to Rs.30,000 as tax exemption on interests payable towards a top-up loan utilised for house purchase or renovation.

After Budget 2019, eligible borrowers can claim tax benefits on home loan interest under two circumstances.

  1. Firstly, 1 rented and 1 self-occupied property: The self-occupied property enjoys tax rebates up to a maximum of Rs.2 lakh. However, a rented property enjoys deductions with zero upper limit. 
  2. Secondly, both rented properties: Here, borrowers can claim deduction on the entire interest payable. 

If you purchase a property worth less than Rs.50 lakh, you are eligible to claim a deduction of Rs.50,000 maximum. Go through the home loan benefits and exemptions for both new and existing borrowers to maximise the benefits thereto.

With all such benefits, opting for a balance transfer facility helps make a strategic choice to reduce home loan interest rates. 

Ensure to check out balance transfer, penal interest, statement, and other associated charges for comparatively lower monthly outflows. Always settle for EMIs that are affordable for you. Adequate financial planning can help you reduce your debt burdens effortlessly and improve your savings quantum remarkably for the future.

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