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Ways To Shorten Term & EMI Of Your Home Loan

Owning a house often gives the homeowner a sense of security and stability. However, it is a considerable expense that most homebuyers cannot afford to fund from their savings. That is why most of them apply for home loan to purchase the property they can call home. A home loan lender may sanction 80-90% of the property’s price as a home loan, and the borrower pays the remaining amount as a down payment. However, the home loan amount one may qualify for depends on the borrower’s income, financial obligations, credit rating, and other factors. Once availed, the borrower has to repay the loan to the lender in EMIs along with the interest rate.

A home loan tenure may extend to 25-30 years, consuming a large part of the borrower’s monthly income. So, here are a few ways to shorten the term and EMI of a home loan to make it more manageable.

Compare Lenders and Get the Lowest Interest Rates

The housing loan interest rate is a key determining factor for home loan tenure and EMIs. It is the extra cost the borrower has to pay apart from the loan amount they borrow. A higher interest rate means the borrower has to pay a bigger EMI each month or select a longer loan tenure to accommodate the loan cost. So, comparing lenders and getting the lowest interest rate is the best way to save money and keep EMIs manageable.

Make a Bigger Down Payment

Lenders provide 80-90% of the property’s price as a home loan. However, if affordable, one must fund maximum from their savings and borrow the minimum loan amount possible. Borrowing less will eventually mean a shorter loan tenure and a smaller EMI amount.

Maintain a High Credit Rating

The credit rating is one of the most critical factors affecting a borrower’s interest rate. Consequently, it affects the loan term and EMIs as well. Therefore, maintaining a high credit score of 700 or above is the best way to reduce the loan term and EMI.

Lenders largely depend on an applicant’s credit score to determine their interest rate and loan amount. The higher the credit score, the higher the loan amount and the lower the interest rate they may avail. Credit bureaus give credit scores based on people’s repayment history, debt-to-income ratio, credit utilisation rate, credit length, outstanding balances, etc. Those who repay their EMIs and credit card bills on time, maintain a low DTI and CUR ratio and diversify their credit mix get a high credit score. It helps get a lower home loan interest rate, shorter-term, and easily manageable EMIs.

Opt for a Floating Interest Rate

Home loans come with fixed and floating interest rates. The fixed interest rate is decided at loan approval and remains the same throughout the loan tenure. The floating interest rate keeps decreasing and increasing according to the market rate. That means the EMI amount or loan term will also reduce when the market rate goes down. So, check with the lender and opt for a floating interest rate rather than a fixed rate.

Pre-Pay When Possible

An effective way to shorten loan tenure and reduce EMI is loan pre-payment whenever possible. After taking a home loan, the borrower’s financial condition may improve, the salary may increase, or they may get a lump sum amount from an investment, inheritance, or gift. Whenever affordable, the borrower must try to pre-pay the loan. After pre-payment, the borrower may request the lender to adjust the pre-payment to reduce the EMI or shorten the loan tenure.

It is essential to check the lender’s pre-payment charges when they apply for home loan. Many lenders charge no or nominal pre-payment fees to make pre-payment a feasible option.

Consider Home Loan Balance Transfer

When the borrower’s financial condition improves or they increase their credit score, a home loan balance transfer becomes a lucrative option for them. Transferring their loan balance to a lender offering a lower interest rate may shorten their loan tenure and reduce EMI.

These are a few practical tips to reduce the loan tenure and EMI amount to minimise the financial burden. Compare lenders and apply for home loan with the most competitive interest rates. Besides that, don’t forget to check the lender’s pre-payment charges to save money when the time comes. Read More About Smart World One.

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