Buying a home is one of the greatest financial obligations in an individual or family’s financial life. Taking out a home loan from a bank requires years of repayment of hundreds of EMIs that were paid off over decades.

Given the size of the loan, EMIs make up a significant portion of income, especially among employees. If you already have an ongoing home loan or are planning on taking one out, it is advisable to do a quick review to see if you are eligible to cut your EMI spending.

Check your interest rate regime

Once home loan repayment begins, it is easy for borrowers to ignore their changing outstanding balance and the way banks calculate lending rates. Until July 1, 2010, all loans were linked to the Prime Lending Rate (BPLR) benchmark, which was later changed to the base rate. After April 1, 2016, floating rate loans were tied to the marginal cost rate for fund-based loans (MCLR), which has been changed to the external benchmark rate (EWR) since October 1, 2019. If you paid off your home loan years ago, it is possible that your loan will still be at the old rate if you have not switched to the new one.

With old interest rates such as BPLR, base rate or MCLR, your interest outflow can be significantly higher than with the newer interest rate EBR. Switching to the EWC interest rate scheme can lower your interest rate and thus your EMI.

You can contact your existing bank and request a change in your interest rate by paying small fees.

Transfer your loan to a new bank

The interest rates of all banks and home financiers are different. Check the interest rate you are paying and compare it to other lenders. Also, check what interest rates your lender charges you and switch to EWC if you haven’t already. Make a balance transfer if you can get a better interest rate from another lender.

Change to the variable interest rate from the fixed interest rate

If you borrowed the amount in the past, there is a good chance that you will pay higher interest rates and will for the remainder of your tenure. Lenders charge 1-2% more for fixed rate loans. For example, five years ago the floating rate was around 9% while the fixed rate was 10.5%. In the current situation, the floating rate has dropped to 7%, fixed rate borrowers would still pay 10.5%.

Partial prepayment to lower EMI

Variable rate borrowers have the option to make a partial prepayment without paying a contractual penalty that allows them to reduce their EMIs. Each partial repayment reduces your home loan amount. This not only reduces the loan amount, but also the loan term. If you don’t want to shorten your repayment period, you can ask your lender to reduce your EMI.

Term Extension

Consider extending the life of your home loan if you are under financial stress and want to reduce your EMI exposure.