20 Dec 2020KEY OBJECTIVES
This blog article is very useful if you are struggling with your job, business, or finances due to COVID-19. You will learn:
With the ongoing economic crisis-induced by the COVID-19 pandemic, it has become a daunting challenge for the common man to handle loan payments and other monthly expenses. This is largely due to paying cuts and layoffs taking place in most sectors. Fortunately, during this pandemic season, there are several ways to lower your home loan EMIs.
RBI INITIATIVE ON EMI HOLIDAY
To resolve the financial crisis, RBI declared a total of six months moratorium on loan EMIs starting from 1 March 2020 to 31 August 2020. The period of moratorium refers to the period during which you do not have to pay an EMI on the loan earned. It is also regarded as a holiday for EMI.
We have found a few intelligent strategies by which you can reduce the monthly loan EMI burden for the benefit of home loan buyers. Let us address these strategies in detail.
One of the best ways to save on EMI payments is by refinancing your home loan at a lower interest rate. So if you wonder how to reduce the EMI amount of your home loan, consider changing your lender. It is likely that several years ago you might have taken home the loan and at that point, the interest rates were on the higher side than they are now.
Changing the lender of the loan is not a complex operation. Start searching for a new lender that provides lower interest rates and you can easily get your current lender to move a home loan. Experts also recommend that you select a lender that provides a Lending Rate (MCLR) based on the Marginal Cost of Funds, as you will benefit from lower repo rates.
To check the amount you will be paying at a discounted interest rate, you can use an EMI calculator.
Many banks and Non-Banking Financial Companies (NBFCs) have waived loan pre-payment charges because of the pandemic situation, allowing borrowers to pay a substantial sum of money to repay the loan in advance. It is possible to use the home loan overdraft facility that is connected to your bank account to deposit any amount greater than the EMI.
This will be used as a pre-payment for the home loan, thereby lowering interest on the balance of the unpaid loan. In case of any emergency, you will have the flexibility to withdraw this extra amount later and the outstanding loan amount will be changed accordingly.
Both the interest and EMI balance would be lowered by paying a higher down payment amount on your home loan. If you are taking advantage of a home loan, use your savings, and consider making a larger down payment. Besides, rules for the withdrawal of funds from the Employee Provident Fund Organization (EPFO) account have now been relaxed by the government.
In March 2020, the Labor Ministry released a notification enabling 60 million subscribers to withdraw from their Provident Fund account, whichever is lower, up to 75% of their retirement savings or up to three months’ minimum salary and dearness allowance (DA). It is a smart choice to make the most of all these services to pay a higher down payment on your home loan.
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Another option is to pursue an extension of the current home loan lender’s repayment tenure. Although longer credit tenure means you have to pay more interest, your monthly EMI balance may be substantially reduced. This is the only choice you can consider if nothing else works.
The extension approval depends mainly on your age, as the loan duration is generally allowed only until your retirement age and not beyond that. You can, however, approach your lender and request an application.
SUMMARY
As a borrower, if you are looking for ways to reduce your EMI burden on your home loan, follow the tips listed above. During these demanding times, you can easily handle your home loan EMI with smart planning and some tactical moves. Make sure you select a reputable lender that provides lower interest rates if you are looking to take out a new home loan.
Also before signing any papers, you must review and understand the rules and eligibility requirements provided by the lender. Being aware of the interest calculation, loan tenure, pre-payment options, refinancing and extension policies, etc can allow you to make an informed decision.
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