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You can then submit an application to your current lender and obtain necessary documents then head to your new lender to process KYC and other procedures. The new lender will then implement their procedures before approving it for you. This is why some borrowers find it appealing since lower interest means saving more money every month. Even if there is a situation where the floating rate exceeds the fixed rate, borrowers need not worry since such conditions are temporary and will not impact the entire tenure of the loan.
If you switch your loan to an EBR-linked loan, chances are your interest rate will go down and, therefore, your EMI as well. A home loan is probably the biggest responsibility one takes on in one’s lifetime. For this reason, most home loan borrowers are always looking for ways to reduce their monthly equivalent expenses . Try to maximise your EMI payments but not more than what you can comfortably pay every month. So, choose the home loan tenure carefully as this impacts the amount of EMI you will have to pay every month. Generally, a home loan is taken for the tenure ranging from 10 to 30 years.
Make a Larger Down Payment
You can go to your existing bank for this change, and they may allow you to do so after charging a nominal change fee. The State Bank of India , for example, charges Rs 5,000 plus GST to switch plans. In the initial years, your disposable income will get squeezed in order to pay off higher EMIs.
However, as time passes this EMI amount will get easier for you to pay, as normally a person's income increases with time as he/she progresses in career. You can negotiate the service terms of the home loan with your existing lender. Mutual Fund investments are subject to market risks, read all scheme related documents carefully. You can approach your existing bank for this shift, and they may allow you to do so after charging a nominal switching fee. The State Bank of India for instance charges Rs 5,000 plus GST for switching regimes. On combining the two, i.e. paying one additional EMI every year, along with increasing the EMI amount by 5 percent every year; the interest burden will reduce significantly.
Have a Look at Your Interest Pricing Regime
Other factors will be the quantum of loan and the amount of down-payment that you have made on the loan. Considering the above point, where the individual has a good standing with their bank, they may be in a position to negotiate with the bank for a lower rate of interest on the loan. Banks may be willing to do so for their existing customers in order to increase brand loyalty and also attract more customers.
So, there is a good chance that you may be paying a higher EMI just because your loan is not from a competitive lender. If you have not compared your interest rate, then it is a high time that you do so and check if your lender is charging a higher rate even under EBR. Since most of the home loans are on floating rate basis and there is no penalty on shifting your loan, therefore the only cost involved will be the fee charged by new lender.
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For instance, if you have an existing home loan on a 10% per annum rate of interest, you can balance transfer your loan to another lender and pay a much lower EMI. At present, the lowest rate of interest is 8.35% per annum which is offered by top banks like SBI, HDFC, Axis, LIC and ICICI Bank. So, a balance transfer can surely help you save a lot on the repayment by paying the EMI that is in your budget. Making regular prepayments before the home loan tenure is over can help to reduce your interest payments considerably.
Use a Home Loan EMI Calculator to understand how a different interest rate, loan amount, or tenor can affect your EMI. If your loan EMIs exceed 40-50% of your net salary, then your EMI is too much for you. Even the banks and financial institutions ensure that your loan EMIs do not exceed per cent of your net salary. Now if you invest a month SIP of Rs 2000 which is 10% of the EMI, then for the same period of 25 years, you are getting Rs 65.7 lakh, estimated at 15% p.a.
Don’t Skip Payments
If you’re about to take a home loan, there are a few things that you must keep in mind. The first is your eligibility criteria, based on your income and repayment capacity. The other factor would be the cost of your home loan, which includes processing fees, administrative charges, prepayment fees, etc.
If you get a salary hike or if you consistently see a rise in your income, then you could opt to increase your EMI. This might seem odd at first but the more your EMI is, the shorter is your tenure and so you will see a significant reduction in your interest rate. Most banks and financial institutions finance 75% to 90% of the value of the property, depending upon the borrower’s eligibility. Plan accordingly and ensure that you borrow less so that you can pay lesser interest.
Since home loans are long-term loans, even a small deduction in the interest rate greatly reduces the overall EMI to be paid. So, if your home loan is under fixed rate of interest, contact your bank and place a request to change it to floating rate of interest. If you think you have taken a loan at a high interest rate, you always have an option to refinance it. Banks normally offers interest rate based on the MCLR regime which differs from lender to lender. In such a scenario, you can switch to another lender offering better rates. Existinghome loan borrowers having sizeable residual tenure can also transfer their existing home loan to another lender at lower interest and then opt for the home loan saver/overdraft option.
In fact, before processing your loan, a loan officer will verify your employment status. If you change jobs or quit during the closing process, then it is most likely to affect your home loan approval. Down payment is the amount the customer pays upfront at the time of purchase of the respective item.
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