Taking on a home loan can be a big financial decision. It is not just any other short-term loan, and it can run for up to 30 years if the borrower wishes. However, typically, first-time homeowners prefer a home loan option for up to 10-15 years. Even this is a long time frame that requires prudent financial planning. Despite such a long loan tenure, the sheer amount of a home loan (which is usually in several lakhs) results in a higher EMI than any other loan. However, there are ways to help reduce this monthly burden. Using a home loan EMI calculator is one way to do this. Here is how you can use such a calculator to your benefit.
1. Choose a Longer Repayment Tenure
One of the best ways to reduce your monthly EMI burden is to choose a longer loan tenure for your housing loan. Using a home loan EMI calculator, you can put in the required values like the loan amount, the interest rate, and the loan tenure. This will give you an accurate estimate of your EMI. You must increase the loan tenure if this EMI amount exceeds your monthly budget. This will give you a lower EMI. However, it is to be noted that repaying a home loan for a more extended period can result in a higher cumulative interest paid on the principal.
2. Opt for Competitive Interest Rates
Housing loan interest rates are among the most important factors impacting your EMI amount. A higher interest rate means your EMI will be higher each month. Conversely, a lower interest rate can lead to a more affordable EMI each month. You can get a more appealing loan interest rate from a bank or non-banking financial company (NBFC) if you have a high credit score (CIBIL score) and a prompt credit history. Using a home loan EMI calculator, you can change the value of the interest rate to see the resultant change in the EMI. In this way, you can compare the interest rates different lending institutions offer. You can see your resultant reduced EMI by choosing the lowest interest rate.
3. Make a Larger Down Payment
Another way a housing loan EMI calculator can help is to calculate your EMI based on the adjusted value of the loan amount. This is especially useful when you make a sizeable down payment on your home loan amount. The new home loan is then calculated by subtracting the down payment from the loan principal. An EMI calculator can be of great help to you in recalculating your EMI after the down payment.
4. Utilise Prepayment Options Wisely
You can also reduce your home loan EMI by calculating your new EMI based on partial repayment. During the early years of the home loan, you may want to prepay a substantial portion of it. This can effectively reduce either your loan tenure or the EMI amount. However, once this is done, you must re-enter the loan amount, loan tenure, and housing loan interest rates to get an output for a recalculated EMI. Therefore, the option for partial pre-payment may lead to changes in your EMI, for which the EMI calculator works best.
5. Refinance When Interest Rates Drop
Some borrowers may even reduce their EMIs by refinancing their housing loans whenever interest rates drop. You may transfer your home loan to another lending institution in such cases. This effectively refinances the loan based on the current interest rates in the market. You will again need an EMI calculator to recalculate your new EMI based on a reduced interest rate. However, refinancing the loan may incur additional processing and hidden charges. So, using an EMI calculator, you can estimate whether paying these charges again is worth the reduced interest rate.
Conclusion
Housing loan interest rates are volatile and may increase or decrease depending on several external factors. Despite this, there are ways to reduce your EMIs. To do this, a housing loan EMI calculator is a great tool.