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Focusing solely on reducing your Home Loan EMIs can set you back by several lacs

May 26, 2017

Yes. You read it right. Most home loan borrowers are only concerned about EMIs. They will be asking questions like ‘How much EMI I have to pay?’, ‘Can I reduce my EMI somehow?’ etc.

No doubt EMI is a very important factor when it comes to taking a home loan. But you need to understand that there are other important things that should be your focus too. EMI itself is dependent on a lot of factors. And these factors can save or set you back by a lot of money.

So let’s discuss some such factors:

Home Loan Rates

It’s common knowledge that lower the interest rates are, lower will be your EMIs. Infact, even a small difference of just one percent can have a significant impact on the total interest you are paying over the course of loan. Assume that two friends decide to take two individual home loans of Rs 40 lac for 20-year tenure. One friend is getting a rate of 10.5% while other is getting it for 9.5%. Now this small difference of 1% will result in a difference of about Rs 6 lacs when it comes to total interest paid. So focus on finding a lender who can offer you the least possible rate for home loans.

Loan Eligibility & Down Payment

Generally, lenders are ready to only lend 80% of the cost of the house. But if you have some extra money that you can use to increase your downpayment, then you should do it. This will reduce your loan requirement and you have a chance to negotiate with them to reduce your interest rates. This in turn will help reduce EMIs.

Credit Score

Before applying for a loan, check your credit score. If your credit score is low, you will be offered higher interest rate on loan as poor credit score points towards the un-creditworthiness of the borrower. If that’s the case, you should postpone your decision to take a loan and improve your score first. This will result in lower borrowing rates in future which once again, means lower EMIs