Important Tips to Reduce Your EMI on Home Loans During COVID-19 Crisis

The home loan market has grown at a rapid pace in India in the last decade. As per RBI, the sector registered a 17% year-on-year growth as of February 2020. Nevertheless, due to the recent economic downturn in the country, borrowers are finding it difficult to make timely repayments, especially those who have been paying a high EMI amount on their home loans. Under such circumstances, not taking the essential steps in time can result in a significant financial strain. Thus, given below are some essential tips that a borrower can follow to reduce his/her home loan EMI burden – 

Negotiate with your lender – 

If you have had a good repayment history maintained up until now, you can use it to negotiate with your lender for interest rates reduction, which can help in limiting your home loan EMIs significantly. Alternatively, you can also request for repayment tenor extension, which can lead to a reduced EMI amount. However, you need to remember that opting for a longer tenor will result in an increase in the overall interest payment.

You can use an online tool like Home EMI calculator to assess such increase in interest accrual. Furthermore, you will also be able to estimate the reduction in your EMIs with such an increase.

To compute the amount, enter the following details in a home loan instalment calculator – 

• Loan amount 
• Tenor 
• Interest rates

Opt for home loan refinancing – 

You can also consider refinancing your outstanding home loan with a new lender offering reduced home loan interest rates and better service terms with a home loan balance transfer. 

Nevertheless, keep in mind that a home loan balance transfer is only advantageous if you are in the initial years of your repayment period as the EMIs’ interest component is more than the principal component during this period. A home loan balance transfer calculator will help you to determine the difference in the home loan EMI amounts that you were paying to your old lender and that you will be paying to your new lender. You need to enter the following details to assess such change via the calculator – 

• Current financial Institution
• Residential address
• Starting month and year of your home loan
• The overall loan liability
• Remaining loan tenor
• Interest rates charged by the current lender
• Interest rates offered by the new lender

Further, there are several reasons to refinance your home loan now. For instance, you can access additional funding like a top-up loan when opting for a balance transfer. 

Some lending institutions also offer pre-approved offers to borrowers which help in simplifying the loan application procedure. Such offers can be availed on multiple financial products like home loans and loans against property. You can check your pre-approved offer by entering your name and contact details.

Choose to part-prepay your loan

You can also consider part-prepaying the outstanding home loan principal amount, which will lead to either a significant reduction in home loan EMI or help shorten the repayment period. It will also enable you to save a substantial amount on interest payment.

Furthermore, borrowers can also avail tax benefits on their home loans under applicable sections of the Income Tax Act.

Also Read: Home Loan EMI and RBI Rate Cut. How are they Related?

Accompanied by various tips to reduce home loan EMI amount, tax benefits can help save substantially. Some sections providing tax benefits for home loans are – 

1. Section 80C – Under section 80C, one can avail annual tax deductions of up to Rs.1.5 lakh on the principal component of his/her home loan repayment. Exemptions can also be claimed for stamp charges, registration fees etc. Additionally, you should also know the tax benefits on a joint home loan under this section.

1. Section 24 – You can claim an annual deduction of up to Rs.2 lakh on the interest component of home loan repayments in case of a house which is self-occupied. For rented properties, no upper limit has been specified yet. However, if you have availed loan for a property which is undergoing construction, you can claim interest deduction only when the construction is complete.

However, if you are a first-time homebuyer planning to apply for a home loan to purchase a property soon, you should carry out extensive market research to look for affordable home loan offers and schemes. If possible, you should also pay a high amount as down payment which will further help in reducing the overall loan amount, thereby resulting in reduced home loan EMI amount.