Save on your monthly home loan EMIs

If you have already availed a home loan, those monthly EMIs are likely to constitute approximately 30% to 40% of your monthly income. Now that, is a substantial amount. Usually, after paying off all your essential bills and EMIs you are left with barely, so the habit of savings, something that you’ve been taught from the time you first started earning, takes a massive hit.

Home loans are large in size and if you are a salaried, middle-class person, the burden of the interest is also quite large. There are options to reduce this burden and save on your monthly home loan EMIs that can help increase your disposable income. Before we look at these options, let's look at the current scenario with respect to home loan interest rates. Currently, home loan interest rates are at a record 15-year low with several banking institutions offering home loans at an interest rate of 6.95%. Most public sector banks and lending institutions are also extending home loan offers at low-interest rates (around 7% or so) after the Reserve Bank of India slashed its Repo-Linked Lending Rates several times. This very rare occurrence is mainly due to the COVID-19 pandemic and this move has been made with a bid to infuse liquidity into the economy. The RLLR was announced in October 2019 by the RBI to introduce an external benchmark-linked loan regime. Let’s understand what is an RLLR loan.

What is an RLLR loan? An RLLR loan is an external benchmark linked system where it's linked to the repo rate. It was introduced by the RBI to ensure accelerated transmission of policy rate cuts from central bank to retail borrowers which means that a shift in the repo rate amounts to a proportionate change in the repo-linked loan’s interest rate. It’s calculated as the repo rate in addition to the bank’s markup and over and above this spread the bank also adds the borrower’s risk rating spread to come up with the final rate of interest on the loan. Only banks are allowed to provide RLLR loans presently. Now let’s look at how much you can save with an RLLR loan -

Take two different types of loans - both for an amount of 40 lacs for a tenure of 20 year being offered at an interest rate of 8.5% per annum - one is linked to the repo rate and the other is linked to MCLR (Marginal cost of funds lending rate). The monthly EMIs on both loans is Rs.34,713 with the total projected interest of 43.3 lacs. As per the RBI’s repo rate cut of 75 basis points in March 2020, the RLLR will immediately reduce to 7.5% at the next reset date which will bring your EMIs down to Rs.32,224 and your projected interest would come down to 37.3 lacs whereas in case of MCLR-linked loan, the interest rate will change in a gradual manner over a period of 6 months or so because banks can’t pass the full value of the repo rate cut to their borrowers. Now, with an RLLR loan, there could also be a increase in your EMIs whenever the RBI increases the key policy rate in the future so it’s advisable to prepay as much as possible when the repo rates are low in order to become debt-free faster and reduce your burden in the long run.

How can you save more on your EMIs? Now, let’s look at how you can save on your monthly home loan EMIs and increase your disposable income. The best way to do this is to opt for a home loan balance transfer. A balance transfer involves shifting your outstanding loan to another lender who is offering a lower interest rate. Since the RLLR policy can only be implemented by banking institutions, NBFCs (non-banking financial companies) can still offer attractive lending rates for a balance transfer and help reduce your EMI burden. You can explore various balance transfer options through Finwisely to arrive at the best solution. Additionally, if you are looking to reduce your home loan EMI, you can opt for an extended tenure which will reduce your monthly home loan EMIs burden and help you meet other financial goals.

Want to know more about how to save on your home loan EMIs? Get in touch with Finwisely to get your first consultation. No charge!

What can Finwisely do for you? From helping you compare and understand your options and recommending financial institutions that will best suit your needs to walking you through the home loan process, Finwisely can play an important role in helping you save on your monthly home loan EMIs with several options available for a balance transfer. Finwisely is an end to end solution that understands your financial needs and gives you the personalized attention you deserve.

Original Content: Owning a home is undeniably one of the top priorities in every adult’s bucket list. Whether you prefer a modernized urban apartment or a lovely suburban home with a white picket fence, the feeling of owning your own property is unmatched. However, buying a house isn’t as easy as it seems, especially if you rely on a consistent monthly income. There are several nuances involved like shortlisting a property, ensuring the legalities are met with and of course, applying for a home loan from credible sources with a rate of interest that doesn’t burn a hole in your pocket. The procedure to apply for a home loan is fairly simple - there are several financial institutions and NBFCs (Non-banking financial corporations) that offer easily available home loans at attractive interest rates. These institutions help you with the entire process of home purchase from applying for a loan to processing and finally disbursement, allowing you to achieve your financial goal and become a proud homeowner.

When you avail of a home loan, two things you need to consider are - the home loan rate of interest and the tenure of the loan. They are the main determinants of how good an offer you get from a bank or an NBFC. It’s a wise decision to opt for a lesser tenure as it reduces the burden of interest on you. A shorter loan tenure guarantees complete repayment of the loan amount faster, resulting at a lower rate of interest. A higher interest payout doesn’t necessarily mean that it’s an effective interest rate. In case of a longer loan tenure, the total interest payout is far higher when compared to the ROI in a shorter loan tenure. Also, when you opt for a shorter tenure, you are able to pay off the principal amount faster. Let’s look at some ways in which you can reduce the burden of interest and save on your monthly home loan EMIs - Compare interest rates & opt for lower ROI Before you avail a home loan, ensure you put in a lot of effort in researching various options. A lot of online portals like Finwisely help you compare offers from different banks and financial establishments in terms of interest rates, tenure, eligibility amongst others. Spend time going through these options and opt for lower interest rates. Make a bigger down payment Home loan lenders usually provide 80-90% of the property value and the rest is paid by the applicant as down payment. The more you contribute as down payment for the property, the lower your LTV ratio ( Loan-To-Value) which enhances your loan eligibility and reduces your EMI amount. However, ensure that you aren’t overstretched financially while making the down payment and are comfortable making that payment.

Lump Sum repayment at regular intervals If you pay lump sums every 2 or 3 years, you get two benefits - reduce the tenure of your loan and reduce the interest payout. Let’s understand this with the help of an example - If you have availed for a home loan of 50 lacs at an interest rate of 9% and if you pay 1 lac every 3 years, you can end up saving up to 1.9 lacs and cut down the tenure of the loan by over 6 months. The benefits of paying off your home loan in bulk every few years go a long way and help you save a huge sum in EMIs. Refinance the loan with another lender If you have taken a home loan at a higher rate of interest, you can always refinance and go to another lender offering you a lower rate of interest. Banking institutions usually offer interest rates based on MCLR ( Marginal Cost of Funds based Lending Rate). Under MCLR, the Reserve Bank of India allows banks to set their own ROI based on their marginal cost of funds. If you find a lender with a lower ROI, make a switch and save on your monthly home loan EMIs.

Want to know more about how to save on your home loan EMIs? Get in touch with Finwisely to get your first consultation. No charge!

What can Finwisely do for you? From helping you compare and understand your options and recommending financial institutions that will best suit your needs to walking you through the home loan process, Finwisely is here to be the home loan expert and consultant who will first understand your needs and make suggestions to suit your home buying decision.