Decoding EMI Interest: A Comprehensive Guide to Loan Repayment
Individuals planning to avail of a home loan must familiarize themselves with how home loans work. Home loans are low-interest and long-tenor loans that borrowers pay through home loan EMIs. Each EMI comprises an interest component and a principal component. The interest is the lender’s payout for taking the risk involved in lending money to a borrower.
Through EMIs, lenders recover a majority portion of the interest first and after the lender has recovered a majority part of the total interest, they start directing the majority part of the borrower’s EMIs towards the repayment of the principal component of the loan. Home loans are secured by the property bought with the loan money. Defaulting on home loan EMIs may lead to an untoward home loan journey. Thus, individuals planning to apply for a home loan should use a home loan EMI calculator to calculate their loan EMIs on time. The online home loan EMI calculator is a helpful tool that loan applicants can use to figure out the feasibility of the loan they wish to borrow.
A home loan EMI calculator also gives borrowers their loan amortization schedule. The loan amortization schedule is an elaborate table that details loan repayment. It gives details of what part of your home loan you have already repaid and what part would remain to be repaid at the end of each month. The amortization schedule also gives the borrower details of how much interest they will have to pay every year until the end of the loan tenor and how the payments towards the principal component of their loan will increase with time.
Now that we know how to calculate home loan EMI interest, let us share with our readers some tips on what borrowers can do to reduce the EMI interest on their loans.
Handy Tips on How to Reduce EMI Interest on Your Home Loan
1. Negotiate for a Low Home Loan Interest Rate: If you wish to reduce the interest payout on your loan, try and negotiate for a low home loan rate of interest. Maintaining a good CIBIL score and a stable income and job will help convince your lender of your repayment capacity and encourage them to offer you your desired home loan tenor. Similarly, opting for a home loan with minimum tenure or a low LTV ratio loan will also help convince your lender to offer you the best home loan interest rates possible.
2. Make Prepayments Whenever Possible: As per the latest RBI mandate, home loan borrowers repaying their loans on floating interest rates can prepay their home loans at any point without paying any penalty. Prepayments help reduce the principal amount, which in turn, leads to reduced interest payout on the loan and therefore, reduced EMI interest. Thus, use money from bonuses, share sales and salary hikes to prepay your loan whenever you can.
3. Opt for a Home Loan Balance Transfer: Home loan balance transfer refers to the process of transferring one’s home loan from one’s current lender to another offering better terms and conditions on the loan. In most cases, borrowers choose to transfer their home loan to another lender when there is a possibility of benefiting from a lower home loan interest rate. However, the use of a home loan balance transfer calculator is advised to ensure the transfer will prove beneficial in the long run.
Final Words
Home loans are a long-term commitment and therefore, one must avail of these loans after familiarizing themselves with the entire loan application and repayment process as well as the factors that affect the terms and conditions you get on your home loan as well as its repayment. Having this knowledge at your disposal will allow you to make the right decisions regarding your home loan. Further, the use of online tools, such as the home loan EMI calculator and the home loan balance transfer calculator, is recommended as these tools help with budgeting, repayment planning and discerning the affordability of the loan that one plans to take.
