Buying a home has never been an easy task but the easy availability of Home Loan by different banks and NBFCs has made it possible, and it is easier and cheaper now more than ever. Buying a home is a major financial decision which a person takes during his life. Buying a home is a life goal for any middle class individual and Home loan helps us meet this most life goals. In spite of increasing price of property, buying a home has become easier due to several home loans option in the market. Falling interest rates and government schemes such as ‘Housing for all’ has increased the home loan availability to a common man. The tenure period of a home loan varies from 15 to 30 years hence, if you go for it you will be repaying it till 10 to 30 years.
Hence, when you go for a home loan there are many things which should be taken care of. EMIs are the most important part of any loan and here also it is the same. Ideally, home loan EMI is the first thing that one should calculate to gauge the monthly financial burden that usually comes with a home loan and how you will manage it with your regular expenses. One should always go for those loans whose EMI is affordable to them. Home loan comes with big loan amount and so is with EMIs too. As a matter of fact your EMI is directly dependent on your loan amount, tenure period and interest rate at which loan is sanctioned.
Top 5 Factors that affect Your Home Loan EMI
Tenure Period of the Loan
Even a slight change in the home loan tenure can affect your monthly equated instalment (EMI). Basically, the longer is your loan tenure, the lower will be your EMI and vice versa. But, one thing that most of the people often overlook here is that a longer tenure always comes with higher interest payment. This thing eventually lead to your credit cost. This means that while the EMIs may be lower if one goes for a higher loan tenure but it would end up paying a bigger amount as interest in the long run.
Interest Rate Fluctuations
One of the most important factor that can affect the housing loan EMIs is the interest rate fluctuations. This is mostly applicable to the floating interest, which fluctuate as per the change in the market. These fluctuations can have both positive and negative impact on your home loan EMI. Interest is subject to change as per the changes in the international market. Whenever there is a change in bank rates by the RBI, it is apparently reflected in the EMI of your loan.
However, this does not imply that floating home loans are always a bad idea. When there is a dip in the bank rates it reduce the EMIs significantly. Fixed Home Loan Interest Rate also changes to floating rates but this happens after a course of time. Floating interest rate home loans are mostly preferable for those who have a slightly more flexible income.
Shifting Loan to Different Lender
One may have taken a Home Loan from the most-suited lender he found, but it is difficult to keep a tab on interest rates being offered by others during the entire loan tenure. A Home loan borrowers can change their lender to avail a lower interest rate benefit. This can be done through a home loan balance transfer. But before opting for home loan balance transfer, it’s important to ensure that you are going to save considerably high on your EMIs by switching your lender. The second important thing is the cost involved in transferring the loan should also be considered.
Prepaying Your Home Loan Principal Amount
All Home Loan providers allow their customers to do pre-payment towards their home loan. This lowers the outstanding principal amount and the interest burden too. Most of the Lenders usually charge some percentage on the outstanding principal amount as the prepayment penalty. But when you go for a prepayment the outstanding amount decreases and as a result of which your EMI is also reduced. However, it’s always important to check the prepayment charge, terms and condition before signing the home loan agreement with any lender. If the interest that you have to pay on your home loan is higher than the return on your investments, then it is better to use funds/savings towards the pre-payment of your home loan.
When You go for Step-up or Step-down Method of Repayment
Step-up repayment option is mostly suitable for young people who have a higher probability of increasing their income in future. Here the borrower interest rate is lower is the starting years of the tenure and hence is the EMIs. Here interest and EMIs both increases as the tenure increase. Whereas Step-Down repayment method is mostly suitable for the person who are close to retirement or the one whose income is expected to reduce or stop in near future. Generally people go for this type of repayment when they want to end their loan burden in comparatively less time. In this the EMIs one have to pay in the starting years is high which reduces apparently as the outstanding amount reduces.
These were the top 5 factors which can affect your EMI during the tenure of your Home Loan. So Carefully compare all home loan offers available to you and keep the above mentioned points in mind before you take your final decision.