Smart ways to reduce your home loan EMI payments

While acquiring a home loan, two factors that mainly determine the amount payable as EMI are home loan interest rate and loan tenor. Apart from these factors, there are numerous ways to reduce home loan EMI payments. Some of them are mentioned below.

Bigger down payment

A down payment is an initial advance payment borne by borrowers from their own pockets while purchasing a house on credit. For home loans, generally, an amount equal to around 10% to 25% of the loan amount is needed to be paid as downpayment. The remaining home loan amount is serviced through monthly instalments. Individuals can also choose to hike the downpayment amount to lower loan principal, and, in turn, liabilities. 

Choosing longer tenor 

Usually, non-banking financial institutions prefer borrowers who opt for a short repayment tenor. However, one can choose to extend the loan tenor, which would reduce EMIs and ease repayment. To determine the exact interest amount, which is to be paid, one can take the help of the home loan EMI calculator.

Prepayments

Prepaying your home loan refers to repaying the loan either partially or in full before the official due date. Several financial institutions offer this facility. Previously, a considerable amount of fees was charged for loan prepayments. Nowadays, however, it is easy for borrowers to prepay a significant chunk of their home loan before the defined due date as the majority of the financial institutions don’t charge prepayment fees.

Considering a different lender

Though one might have taken a home loan from a lender offering a high home loan interest rate, there is an option to change the financial institution mid-loan. This usually happens when one finds a lender offering a lower interest rate. This particular process is known as refinancing or balance transfer.

However, before opting for a different lender, one can take the help of the home loan EMI calculator to precisely get an idea as to how much the EMIs can decrease.

Negotiating service terms

An existing home loan borrower can negotiate the service terms of this credit with his/her existing lender. This can let the borrower procure a low rate of interest on the loan amount. Maintaining good terms with the existing home loan borrower can let an individual go on for such a negotiation.

If you have maintained an impressive repayment history with the chosen lender, the chances of acquiring housing loans at favourable rates are higher. However, if a borrower’s credit score is lower than desirable, most HFCs would avoid lowering rates.

Home loan borrowers should be responsible for their repayments, irrespective of how they opt for reducing EMI payments. In that way, they would become eligible to enjoy additional benefits.

For instance, financial institutions provide pre-approved offers, which help in simplifying and accelerating this lending process. These offers are provided on various financial products like home loans, loan against property and more. One can check the pre-approved offer by providing a few details, such as one’s name and contact number.

Hence, if a borrower wants to reduce EMIs even after choosing their desired home loan interest rate and tenor, doing so is simple by following the tips mentioned above.

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Important Documents Required for Home Loan Refinance

Many a time, individuals can suffer from sudden financial crises, making it difficult for them to sustain their current home loan repayment. Borrowers can also find themselves stuck with a high interest housing loan while current market rates have lowered. 

Under such circumstances, they can transfer their outstanding amount to a lender offering lower interest rates along with better offers like a top up loan. However, there are certain mandatory documents that you must provide to ensure successful home loan refinancing.

KYC documents

These include documents like Aadhaar card, PAN card, driving license, passport, or voter ID, which serve as identity and address proof.

Loan agreement

Borrowers need to collect the sanction letter or loan agreement of their existing home loan from their current lender.

Home loan statements

It is mandatory for individuals to provide their new lender with details of existing EMI repayments and the total outstanding amount. These details are included in home loan statements that individuals should collect from their current lending institution. 

Consent letter

When opting for a home loan balance transfer, write an application to your loan provider informing them of the same and requesting a consent letter.

NOC

Besides a consent letter, your existing lender must also provide a No-Objection Certificate, stating that they have no disagreement in shifting the funds to another creditor.

Foreclosure letter

This document indicates that your home loan is foreclosed, and you have no due amount with the present financial institution.

Post-dated cheques

Make sure to collect all such pending cheques from your current loan provider before refinancing.

Plus, do not forget to retrieve all property documents from the first lender. Submit these, along with required financial documents to your new financier to avail benefits like a top up loan. Such additional funds can help you cater to increased financial obligations in case of a crisis.

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How to Claim tax Benefits on Home Construction Loan?

 Amidst the launch of different housing loan schemes like Pradhan Mantri Awas Yojana by the Government of India, the real estate sector has witnessed substantial growth over the years. One of the key advantages that borrowers get to enjoy with availing a home loan is the tax benefits it offers. Since EMIs are ideal repayment methods for this particular loan variant, which includes paying the principal amount and interest rates, home loan tax benefit inevitably applies to both of them.  

According to the Income Tax Act, 1961, borrowers get to enjoy exemptions in taxable income for both these components, which allows them to save substantially while investing in the purchase of a house. 

Therefore, it is necessary to be aware of aspects related to the same and evaluate the amount using a home loan tax benefit calculator. Following are some tax deductions applicable for individuals availing a home loan - 

• Section 24: Under this particular Section of the Income Tax Act, you can claim deductions on your home loan interest amount, up to a maximum amount of Rs.2 lakh. However, there are certain norms and home loan eligibility criteria borrowers are required to meet in order to avail of this benefit. 

• Section 80EE: For every first-time homebuyer, Section 80EE seems quite beneficial since it allows them to claim an extra subtraction of Rs.50,000 per FY towards interest payments. However, this benefit is applicable to individuals who have availed the loan between 1st April 2016 and 31st March 2017. Also, individuals applying for a joint home loan can enjoy additional savings as both the applicants are eligible to claim the home loan tax benefit. 

Apart from these, borrowers can also claim deductions of up to Rs.1.5 lakh on the principal amount under Section 80C. In some states, additional tax concessions are available on home loan for women. Therefore, if you are thinking about tax planning, it is advisable to go through all these benefits carefully before opting for a house construction loan. It is also advisable to utilise a home loan EMI calculator at the very onset to compute EMIs, alongside tax savings, to propagate better financial planning.

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Top Factors That Badly Affect Your Home Loan Interest Rates

One of the most prominent factors deciding your home loan affordability is the interest rate. It definitely does vary across lending institutions, depending on market conditions. However, many applicants might not be aware of how these rates can be negotiated depending on their property characteristics, eligibility, and financial habits. Here are some of the top factors affecting home loan interest rates and ways in which individuals can save on the same.

 

Poor employment history:

Most lending institutions mandate employment stability to gauge an applicant’s repayment capacity. Individuals with frequent job changes, low income, or poor business turnover are likely to incur high housing loan rates for security

Unimpressive credit history:

A 750+ CIBIL score and clean repayment history are ideal when availing housing loans. It also provides power to borrowers during negotiations for lower home loan interest rates. Additionally, you can enhance your credit score by restricting your credit limit usage to 30%.

 

Loan amount and tenor:

Generally, financial institutions charge high interest rates against very high or very low loan amounts and long tenor. Using a loan EMI calculator can help individuals determine an amount and tenor according to their affordable interest rates. 

 

Property value and location:

Properties located in areas with good connectivity, like extensive railway and road network, and close to hospitals, ATMs, airports, etc., have greater value. Lenders prefer investing in such properties with high resale value and generally offer lower home loan interest against them.

Down payment:

Larger the down payment you make, the lower will be the loan principal you acquire. Also, a down payment exceeding 20% of property price displays greater repayment capability and attracts lower interest rates.

Additionally, interest rates can also vary with their type: floating and fixed. Considering and improving upon these factors before applying for a home loan in India can help individuals avail considerable interest savings.

Lastly, do not forget to compare the rates offered by various housing finance companies. Depending on a lender, such rates can vary tremendously in some cases.

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Owning Multiple Home Loans? Know How to Deal Smartly

Contrary to popular belief, individuals can opt for more than one loan. In fact, there are families that might be having a car loan or home loan in India besides a personal loan. The biggest concern with multiple debts is repayment. While different financial products might offer you different benefits, they also come with varied interest rates, tenure, and other repayment conditions. 

Although multiple loans might cut down on your monthly disposable income, there is no reason why you should be pulling your hair out, trying to overcome debt. Here are a few tips on how to tackle multiple loans smartly.

Prioritize paying off one loan at a time

The way to clear off debts faster is by listing one loan repayment at a time, with the most expensive one on top. For multiple home loans in India, repay the ones with higher interest rates first. You can also prepay to lower EMI amounts.

Repay more with an increase in income

End debts faster by increasing the EMI amount for every rise in income. By making such pre-payments, borrowers can reduce home loan tenure remarkably. Also, direct the influx of finances towards prepaying the most expensive loans first, so that you can move on to the next quickly.

Go for debt consolidation or balance transfer facility

Managing a single repayment amount is way easier than tackling multiple debts. For this benefit, borrowers can choose debt consolidation of multiple home loans in India. Also, if you find your current lender’s interest rates overpowering, you can shift the outstanding to lenders offering lower rates, via a balance transfer. 

Refrain from adding to credit card debts

Credit cards might seem convenient for their 50-day free credit. But once rolled over, they can charge a whopping 35-44% interest p.a. This is why you must not accumulate credit card debts besides having multiple loans underway. This will not only strain your monthly budget but will also impact your credit score negatively. 

Also, while you are at it, be aware of the various tax exemption benefits offered for each loan. This way, you can bring down the cost of expensive funds like home loans in India. While under debt, multiple or not, repayment should be your top priority.

Read Also: Tips to Enhance Your Home Loan Eligibility

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Housing Loan Rates Hiked? Know How to Deal With Them Properly!

Home loans that carry a high credit value and an extended repayment tenure is a long-term interest commitment. The credit form imposes a considerable pressure on a borrower’s financial capacity. A hike in home loan interest rates can become challenging for an individual paying EMIs, especially for a floating interest housing loan.

For instance, if one avails Rs.25 lakh at a 10% interest rate for 20 years, total interest payable will be Rs.32,90,130 while EMI Rs.24,126. A hike of 0.5% will compel borrowers to pay an EMI of Rs.24,959. 

This rise in expenditure can be managed in certain ways. 

Ways to deal with the hike in housing loan interest hike

A potential borrower or existing home loan borrower can check these ways to receive a comfortable interest rate.

• Go for a higher down payment

A home loan applicant can opt for a higher down payment to reduce home loan EMI burden. This process reduces liability from a lender’s end and encourages levying a lower interest rate. Moreover, down payment will reduce the outstanding balance, which automatically makes the financial situation viable.

• Opt for a short repayment tenure

Choosing a shorter home loan tenure during application helps to bring down the EMI and housing loan rates. For instance, a Rs.25 lakh loan with a tenure of 10 years brought down to 7 years will simultaneously reduce the interest payable amount. However, keep in mind that doing so would also increase your EMIs. 

• Choose part prepayment

A borrower can use their extra savings to make part-prepayments for the existing home loan. This would help in reducing the loan obligation and simultaneously lowering the EMI. 

Also, if an applicants' income increases, one can use the funds to increase the EMIs, resulting in faster repayment, thereby lowering the interest payable.

• Transfer home loan balance

Refinancing is an excellent option to reduce one’s burden of monthly repayment. A borrower can opt to transfer the home loan balance to a better lending institution. However, one must consider one must opt for this facility when the tenure is longer like 10-13 years or else the transferring charges may become expensive than the savings made by refinancing.

Taking one or more of these steps should help borrowers reduce additional strain from interest rate hikes.

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Important tips to consider before taking a Home Loan

As per recent data, the RBI recently linked the risk weight of home loans to LTV ratio, as applicable to all new housing loan sanctioned up to March 31st, 2022. This particular facility seems quite beneficial for the real estate sector, as it is expected to generate more revenue within the next few years.  

Even though all these aspects have made a positive impact in the home loan segment, individuals are still required to keep certain things in mind before availing this advance. Borrowers inevitably come across a few components of housing loans that play vital roles in the credit sanctioning process. 

In order to make sure the process goes smoothly, here are some important tips one should consider before they avail a home loan:

• Compare different lenders

Depending on how much your equated monthly interest or EMI will be against the home loan, you can choose the tenor and total amount conveniently. Therefore, it is advisable to go through what different lending institutions are offering as interest rates before making a decision. 

• Maintain a healthy CIBIL score

No matter what strategy you have decided to apply in order to smoothly handle the repayment, a poor CIBIL score can hamper all your future plans. Make sure to keep a good repayment track record and maintain a credit score of 750 or above to meet the home loan eligibility criteria. 

• Foreclosure rules

Usually, it helps the borrowers to settle the outstanding home loan amount before its tenor ends. Therefore, along with other important aspects, you also need to ensure that your preferred financial institution does not impose any foreclosure penalty in case of early repayment.

Additionally, going through the home loan documents properly, making a sizable down payment, paying heed to additional charges, etc., should also be prioritized before you apply for a home loan.

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Important Things to Remember While Transferring your Home Loan

Besides lower interest rates, home loan transfer also accompanies a range of benefits like better service, pre-approved offers and many more. 

However, to leverage the optimum advantage, individuals have to consider a few things. Here are some of them. 

1. Time of refinancing

It plays a crucial loan in determining the profitability of this facility. Generally, in the initial stages of repayment, individuals mostly service their interest liabilities. Thus, it is often wiser to opt for this facility during the first half of repayment term. 

Financial experts also suggest avoiding this option after 3 years of repayment.  

2. Negotiate Interest rates

Before switching a lender, existing borrowers should negotiate with their lenders for better home loan interest rates. Lenders often offer revised rates to those with an impressive repayment history. 

Thereby, individuals can save on several charges that are applicable while availing this facility. 

3. Additional charges

Typically, a home loan refinancing comes with several charges that borrowers are entitled to pay. For instance, borrowers need to pay processing fees, foreclosure fees, inspection fees, administration fees and others. 

Thus, before approaching a new lender, borrowers have to weigh if the charges are worth the transfer. For more clarity, they can also use a home loan balance transfer calculator to estimate the cost of this facility. 

4. Repo-rate linked loans

RLLR or Repo-rate Linked Lending Rate is determined by RBI. If the repo rate decreases, the interest rates also decrease and vice-versa. Since interest rates are subject to the market scenario, individuals may have to pay a higher interest rate than before in the event of rate hikes. 

On the other hand, borrowers get immediate relief when RBI cuts repo rate, resulting in reduced EMI outgo. 

5. Credit report 

The eligibility for this facility also relies on the credit history of the borrower. Lenders generally offer loan transfer facilities only to those who have an excellent repayment history and a credit score of 750 and above. 

Hence, keeping these facts in mind, individuals can make most of this home loan transfer facility and lower their home loan EMI burden. 

Read Also: Increase You Home Loan Eligibility: 5 Points to consider

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Important Factors You Should Know Before Taking aTop-Up Loan on a Home Loan

 With a top-up loan, which is usually available during home loan balance transfer, a lender extends an additional credit line over and above the existing loan amount. Such credit is usually available at an easy rate of interest. Nonetheless, there are a few important factors that borrowers should keep in mind before availing a top up loan on home loan –

• Conditions to avail it 

To be eligible for such an additional loan amount, borrowers need to initiate the home loan balance transfer process. Moreover, one needs to have a regular repayment record as well. 

• No end-use restriction

 There are no limitations imposed on home loan top up in terms of its usage. The fund may be utilised to meet any number of expenditures that the borrower sees fit. 

• Tenure

The maximum repayment tenure of a top up loan is 20 years, or till the period of repayment of the home loan. This loan tenure also depends on the borrower’s age, income, credit profile and property value. For such credit, you can calculate your monthly outgo with the help of a top up loan calculator.

Must Read: Things you should know before taking a top-up loan.

• Amount limit

Even though the total balance does not usually exceed 70% to 80% of the total property valuation, the maximum top up loan amount sanctioned varies from one lender to another.

• Tax benefits 

If you have used the top up loan amount for construction, extension or renovation of a home, or funding children’s education, you are entitled to claim tax benefits. 

Thus, a top up loan can provide you with much-needed liquidity when you are in need of urgent funds. You would not have to undertake the hassle of applying for a fresh loan to avail the funds. Moreover, this credit is also available at a competitive rate of interest.

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You Should be Aware of Which Home Loan Tenure is Right for You

A home loan is a convenient financial solution for individuals looking to invest in residential property. Potential borrowers can avail up to Rs.3.5 crore under this funding solution to use for constructing or purchasing a house. 

Nonetheless, availing a housing loan also depends on certain factors, where tenor plays a crucial role.

Factors to consider when choosing the home loan tenor

• Monthly income

Understanding home loan EMI aids borrowers in the systematic planning of monthly outlays. An individual’s income stability plays a crucial role in determining the home loan tenor. In this scenario, an applicant must know that opting for a shorter tenor would mandate paying higher EMI. Comparatively, selecting a longer tenor would decrease the EMI but increase the total interest outgo. 

Hence, a shorter tenor is a compatible option, as it reduces the chances of accumulating higher debt in the long run. An individual with a stable income can request a lender for a befitting tenor option.

• Age

Age is again a crucial factor when deciding a home loan tenor. Lenders give more preference to young borrowers who have more workable years. They easily approve a young borrower’s request to repay the outstanding amount over a longer tenor. Most NBFCs set an age limit of 23 to 62 years for salaried individuals under home loan eligibility parameters.

•  Housing loan interest rate

The applicable home loan interest rate also affects the loan tenor. Usually, this interest rate is revised from time to time, where a longer tenor can significantly increase the interest payment. Comparatively, shorter loan duration decreases the chances of the interest rates being revised to become higher. One can use the housing loan EMI calculator on a lender’s platform to calculate the exact rate of interest.

These few tips can help the housing loan borrower to opt for a suitable tenor that would facilitate ease of repayment.

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Facts to Know About PMAY Subsidy Scheme

PMAY or Pradhan Mantri Awas Yojna is a scheme introduced by India's government to offer affordable houses to the economically weaker sections by 2022. This scheme is primarily divided into two sections - Urban and Gramin. 

Under PMAY urban scheme, eligible candidates are divided into three categories, namely -

• Economically weaker section

• Low Income Group (LIG)

• Middle Income Group I and II (MIG I and II)

Individuals belonging to these categories can use the PMAY calculator to determine the exact subsidy amount they are eligible to avail by entering necessary details like loan amount and tenor. 

What is the goal of the PMAY scheme?

This Credit Linked Subsidy Scheme (CLSS) aims for -

• Slum redevelopment using the support of the private sector and by employing land as a resource.

• Offering home loan to eligible candidates for house construction at a low-interest rate.

• Providing a weaker section with affordable houses under private and public sector partnership.

Eligibility criteria for PMAY 

Interested individuals need to fulfil specific PMAY eligibility parameters to make a successful application.

• An eligible candidate mustn't possess a pucca house in any part of the country.

• He/she shouldn’t avail any credit under other existing housing schemes offered by central government.

• Ideally, individuals with an annual income of up to Rs.18 lakh can apply for this PM Awas Yojana.

An individual complying with the above-mentioned criteria needs to fill an application form on the official website. After submitting details, he/she will receive an application number which is crucial for checking the name on PMAY list.

How to check the PMAY list?

An applicant can check his/her name on the PMAY list by following these steps-

• Log in to the official site and select the beneficiary tab.

• Fill in details like Aadhaar number and redirect to the next page.

• Select the ‘submit’ option to view the selection and application status.

Individual’s without an Aadhaar card can use their assessment ID to view their PMAY status. They have to select the PMAY’s track application status page and enter personal details to view the same.

For the PMAY Gramin list, individuals need to open the designated website and fill in the registration number for details. However, if the registration number is amiss, clicking on the ‘search beneficiary details’ option will be helpful. 

Must Read: Know How to check PMAY List

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