A home loan is most likely the most significant burden that a person incurs in their lifetime. It is also the loan with the longest repayment period. As a result, most house loan borrowers are always looking for methods to minimise their equivalent monthly instalment (EMI) outlay.

Here are six methods for existing house loan borrowers to minimise their EMI.

1. Transfer your loan to a new lender.

Although numerous banks and housing finance businesses provide house loans, the interest rates they impose vary greatly. As a result, there's a considerable chance you're paying a higher EMI just because your loan isn't from a competitive lender. Whether you haven't reviewed your interest rates, now is the time to do so and see if your lender is charging a higher rate even under EBR. Because the majority of house loans are on a variable rate basis and there is no penalty for moving your loan, the only cost involved will be the fee imposed by the new lender.A balance transfer may help you lower your EMI if you secure a competitive rate.

2. Change your interest pricing strategy.

Many existing house loan borrowers are so preoccupied with their lives that once repayment begins, they frequently fail to examine how the composition of their EMI is changing.

There have been several changes in the way banks charge interest on loans during the last 10-12 years. For example, before to July 1, 2010, all loans were tied to the Benchmark Prime Lending Rate (BPLR), which was later converted to the base rate as of that day. After April 1, 2016, all floating-rate bank loans were linked to the Marginal Cost of Funds Based Lending Rate (MCLR), which was later modified to the External Benchmark Rate (EBR) on October 1, 2019.If you have not moved to a new regime, your loan will continue under the same old regime depending on the date of its distribution.

Despite the fact that all interest rate regimes should ideally charge the same rate, this does not occur in practise. When compared to a loan tied to the EBR, you may be paying much higher interest rates under outdated regimes such as BPLR, base rate, or MCLR. If you convert your loan to an EBR-linked loan, your interest rate and, as a result, your EMI will likely decrease.

3. Consider a tenure extension.

If you are under financial hardship and wish to relieve it by lowering your home loan EMI, you should consider extending the term of your loan. For example, if you have 10 years remaining on your Rs 40 lakh house loan at 7.5 percent, extending the term to 20 years might help you save Rs 15,257 on your EMI.

However, this option may not be suitable for all borrowers, particularly those nearing retirement age. Most lenders extend the maximum loan term until the borrower reaches the age of 60. As a result, a borrower over the age of 45 may not be able to extend the term beyond 15 years.

Furthermore, keep in mind that the longer the term of your loan, the larger your interest outlay. While you can utilise the tenure extension option as a short-term temporary fix, if your circumstances improve, you should either restore the original tenure or make a partial prepayment to expedite the payback.

4. Make partial prepayment and get the EMI adjusted

Borrowers with floating rate home loans have the option of making partial prepayments without penalty, which they can use to lower their EMIs. Any partial prepayment has a substantial influence on your loan term because this cash is totally used to reducing the outstanding principle amount. As a result, the loan duration is reduced and the debt is repaid sooner. If you do not want to shorten the term, you might ask your lender to decrease your EMI after a considerable prepayment.

5. loan restructuring

It is a tactic used by corporations, people, and even governments to avoid defaulting on current obligations by negotiating lower interest rates. When a debtor is in financial difficulties, loan restructuring is a less expensive alternative to insolvency. It can help both the debtor and the creditor.

Loan Restructuring

In response to the COVID-19 scenario, the RBI declared an EMI moratorium on March 27, 2020. Following the proclamation, the RBI encouraged all financial institutions to develop a board-approved policy that would refund or modify interest imposed to debtors during the moratorium period.

Loan restructuring

Debtors might choose between a moratorium and a temporary suspension of their EMI payments under this plan.Alternatively, they might request that their EMIs be decreased so that they can continue to make regular payments.

6. Switch from a fixed to a variable rate

If you took out a fixed-rate loan, chances are you'll be paying a substantially higher interest rate for the duration of the loan. Fixed rate loans are often charged a 1-2 percent higher interest rate by lenders. For example, 5 years ago, if a variable rate loan was offered at 9% interest, fixed rate loans were accessible at roughly 10.5 percent interest. In addition, the borrower would be at a disadvantage in the current scenario if he chose a fixed rate loan. While variable rate interest rates have fallen to roughly 7%, fixed rate borrowers continue to pay a higher interest rate of 10.5 percent.

6. Switch from a fixed to a variable rate

If you took out a fixed-rate loan, chances are you'll be paying a substantially higher interest rate for the duration of the loan. Fixed rate loans are often charged a 1-2 percent higher interest rate by lenders. For example, 5 years ago, if a variable rate loan was offered at 9% interest, fixed rate loans were accessible at roughly 10.5 percent interest. In addition, the borrower would be at a disadvantage in the current scenario if he chose a fixed rate loan. While variable rate interest rates have fallen to roughly 7%, fixed rate borrowers continue to pay a higher interest rate of 10.5 percent.

Because interest rates are now at an all-time low, it may make sense for a fixed-rate borrower to move to a floating-rate loan, either with the same lender or with a different lender, as they may find the transfer profitable despite having to pay a penalty for foreclosing on a fixed-rate loan. In the above example, switching to a variable rate loan saves the borrower Rs 4,869 per month in EMIs and Rs 5.85 lakh in interest payments over the remaining term.