Factors that can affect your home loan EMI

            

Factors that can affect your home loan EMI

Taking a home loan is one of the biggest financial commitments that you make, due to the high amount involved. Repaying a home loan usually takes 10 to 30 years, and hence, should be taken after careful evaluation of all factors. The most important factor that you should take into consideration before applying for a Home Loan EMIs. It is the first thing that you should calculate to gauge the monthly financial burden that comes with a home loan. When you are calculating your home loan EMI, ensure your financial life is not adversely impacted due to the home loan. Take in to account all the factors that can have a direct influence on your home loan EMI.

Here are the main factors that can affect your home loan EMI:

1. Change in interest rate: Any kind of change in the interest rate of home loans can have a negative or positive impact on your EMI. If you have taken a home loan at floating interest rate, there would be a change in the EMIs depending on the prevalence rates in the market. Whenever the Reserve Bank of India will make changes in bank rates, your EMIs will be affected. However, this does not imply that floating rate home loans are always a bad option for you. Whenever there is a dip in the bank rates, your EMIs will reduce significantly. Also, they do not involve prepayment penalties. Also, not all lenders offer fixed home loan interest rate and even if they do, your interest rate does not remain fixed for your entire loan tenure.

2. Change in loan tenure: A change in your loan tenure can have a great impact on your monthly installments. The longer the tenure, the lower will be your EMI and vice versa. But, what most people overlook here is that the longer tenure will come with higher interest payments, which will increase the overall cost of your loan. This means that in spite of paying lower EMIs, you would end up paying a bigger amount in the long run.

3. Prepayments on home loan: Making prepayments on your home loan is helpful as it would bring down the principal amount and also lessen the interest burden on you. However, the lender may charge 1-5% as a prepayment penalty. In case of floating rate home loans, you are not required to pay any penalty. It is highly advisable to check the pre-payment clauses with your lender before you sign the loan agreement. You should try and negotiate with your lender to bring down the pre-payment penalty to as little as possible.

4. Step-up or step-down repayment: As a home loan borrower, you may get a chance to choose between different housing loan repayment options. The first option is step-up home loan repayment. This option is considered for those who have just started their career and their income will increase as they gain more experience. In such cases, EMIs will go up with time. The other option is of step-down payment, which is convenient for those who are close to their retirement. In this case, you start with EMIs of high amounts and gradually pay lesser with time.

5. Shifting loan to a different lender: Even if you have already taken the loan, it’s advisable to keep a tab on interest rates being offered by other during the loan tenure. Home loan borrowers can shift their home loan to a different lender to avail a lower interest rate benefit through a home loan balance transfer. However, before opting for a balance transfer, ensure that the savings you will make by switching lenders are considerably higher than the costs involved in transferring the loan.

Hence, there can be several factors which may impact your EMI during the tenure of your home loan. Carefully compare all the home loan offers available to you before making your final choice.

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