If your EMIs go higher, this is how you can renegotiate your home loan

Home loans are one of most important credit facilities for those who want to own a house but lack the funds for a lump-sum payment. The monthly installments under the loan can prove to be an efficient way for many to get their dream home. Recently, there has been a change in the banking sector that has impacted the Equated Monthly Instalments (EMIs) for many borrowers. The amount one has to repay each month has gone up. The increase in home loan interest rates has affected home loan borrowers negatively.

Why did home loan EMIs increase?

The Marginal Cost of Funds Based Lending Rate (MCLR) of some lenders increased in August. Banking sector giants like ICICI Bank, HDFC Bank, Bank of India, Canara Bank, and Bank of Baroda have recorded a rise in MCLR. The rate of interest on loans that are linked to MCLR has increased, including home loans. This has heightened the financial burden on borrowers.

How to get rid of higher EMIs for home loans?

Borrowers can use a few strategies to tackle the situation of higher EMIs. Take a look at some of them.
 
• Increase the EMI annually: Under this process, known as step-up repayment, the EMI amount rises every year. Try increasing the EMI by 5 to 10 per cent every year so that the jump isn't a lot at once and eventually you end up paying the entire loan amount before the due date. This might increase your financial burden a little as the EMIs have already been raised and now you will be hiking it at your end as well. But, proper planning and analysis could be enough for you to find your way through it.

• Use bonus or appraisal amount for a lump sum prepayment: Most corporate sector employees are entitled to incentives like Diwali bonus or appraisals based on their performance. Instead of spending this money on other requirements or saving it, use it to make a lump sum prepayment every year. This will reduce the amount to be paid and the home loan could end much earlier than the due date. The option can attract a penalty of 1 per cent to 5 per cent on the entire loan amount, but the prepayment penalty might not be a problem if the agreement doesn't mention it.

• Balance Transfer: Transferring your home loan could be a game-changer in such situations. You can easily transfer your loan from one lender to another for a lower interest rate. For example, if your home loan incurs an interest of 10 per cent, you can transfer the balance amount to another lender who is ready to provide you the loan with an interest rate of 9 per cent. Currently, the lowest interest rate for home loans is 8.40 per cent.