Mortgages are widely utilised financial instruments that enable individuals to acquire real estate by obtaining funds from a lender and repaying them with interest over a specified period. Securing a loan against property entails a long-term financial obligation that necessitates responsible credit management.
Alleviate the weight of a mortgage loan, various strategies are available to diminish this burden potentially. It is crucial to thoroughly evaluate your alternatives and select the strategies that align with your unique financial circumstances. This article will elucidate several approaches to reducing your Equated Monthly Installment (EMI) for a mortgage loan.
Ways To Lower the Burden Of Mortgage Loan
Opt for a Higher Down Payment
A larger down payment significantly reduces your interest throughout your loan. By lowering the principal amount, you can minimize the overall interest burden. Consider making a substantial down payment to lessen your repayment obligations.
Increase Your Loan EMI
Accelerating your loan repayment can provide substantial relief from long-term financial commitments. You can expedite the repayment process by adjusting your monthly Equated Monthly Installments (EMIs) upwards. Evaluate your current financial situation and allocate a higher amount that won't hinder your expenses. You can repay your loan more quickly by opting for an increased EMI.
Utilise Loan Prepayment
Making a lump sum prepayment towards your loan reduces the outstanding amount. At the start of the loan tenure, a more significant portion of your EMI is directed towards interest payments, resulting in a slower principal reduction. However, with prepayment, the principal amount decreases, reducing the interest burden. Use any additional income, bonuses, or personal savings to make a prepayment and reduce your overall interest obligation.
Shorten Your Loan Tenure
Extending the tenure of your loan provides lower EMIs and eases your cash flow. However, longer terms result in higher interest payments over time. By reducing the loan tenure, you can pay off the outstanding amount more quickly, resulting in lower interest payments. Utilize an EMI calculator to assess the impact of loan tenure on your interest expenses.
Consider MCLR Rates
For loans taken after April 2016, the MCLR determined by the RBI is applicable. If you obtained a loan before April 2016, you can switch to the MCLR rate and take advantage of any changes in interest rates. Remember that switching to MCLR may involve conversion fees and tax implications. Evaluate whether the switch would be financially beneficial before making a decision.
Negotiate for a Better Interest Rate
If you have a good credit score, lenders are often open to negotiation regarding the interest rate on your loan. Request the lender to consider reducing the interest rate, which will alleviate your loan burden. A strong credit score and a history of timely repayments can strengthen your position when negotiating with the lender.
Explore Loan Transfer
If your current loan carries a higher interest rate than other lenders, consider transferring your loan to a different lender. It's advisable to initiate the transfer during the loan's early years when interest payments are relatively high. Evaluate the potential savings from the transfer, as it may help reduce your interest obligations.