A home loan is often the most substantial financial commitment one undertakes in their lifetime. Managing the Equated Monthly Instalments (EMIs) efficiently is crucial to ensure a stress-free homeownership experience. Fortunately, there are various ways to manage your home loan EMIs effectively. In this blog, we will explore different strategies and methods that can help you keep your home loan EMIs under control while securing your financial stability.
- Make Prepayments:
Whenever you have surplus funds, consider making prepayments towards your home loan. Even small additional payments can reduce the principal amount and subsequently lower your EMIs or shorten the loan tenure. Let us understand how EMI prepayments are beneficial with the help of the following table:
| Loan amount | Interest rate | Tenure | EMI | Prepayment | Reduced principal | Reduced tenure |
| ₹10 lakh | 8% | 10 years | ₹10,277 | ₹2 lakh | ₹8 lakh | 7.7 years |
| ₹10 lakh | 8% | 10 years | ₹10,277 | ₹5 lakh | ₹5 lakh | 5 years |
| ₹10 lakh | 8% | 10 years | ₹10,277 | ₹10 lakh | ₹0 | 0 years |
This table shows how prepayment can reduce the loan principal amount and tenure for a ₹10 lakh loan at an interest rate of 8% for a tenure of 10 years. As you can see, a prepayment of ₹2 lakh reduces the loan principal amount to ₹8 lakhs and the tenure to 7.7 years. Furthermore, a prepayment of ₹5 lakh reduces the loan principal amount to ₹5 lakhs and the tenure to 5 years and a prepayment of ₹10 lakh reduces the loan principal amount to ₹0 and the tenure to 0 years, meaning that the loan is paid off completely.
Moreover, EMI prepayment can also reduce the interest accrued on the pending principal amount by reducing the principal itself.
- Refinance Your Loan:
Keep an eye on market interest rates. If they have dropped significantly since you took your home loan, consider refinancing. A lower interest rate can result in lower EMIs.
- Utilize the EMI Step-Up Scheme:
Some banks offer the EMI Step-Up scheme, where you start with lower EMIs and gradually increase them over time, aligning with your expected income growth.
| Year | Monthly Salary | EMI | Remaining principal |
| 1 | ₹50,000 | ₹10,000 | ₹9.5 lakh |
| 5 | ₹75,000 | ₹14,641 | ₹7.5 lakh |
| 10 | ₹120,000 | ₹23,548 | ₹5 lakh |
| 15 | ₹180,000 | ₹37,318 | ₹2.5 lakh |
| 20 | ₹250,000 | ₹57,415 | ₹0 |
In this table, as your salary increases, your EMI payment through the start-up scheme also increases to stay at approximately 20% of your monthly income. This helps you pay off your home loan sooner without facing financial burdens in the initial years.
- Opt for EMI Moratorium or Holiday Period:
In certain situations, banks may allow you to take a temporary break from paying EMIs, known as an EMI moratorium or holiday period. This can provide financial relief during emergencies.
- Create an EMI Reserve Fund:
Build an emergency fund specifically designated for paying EMIs in case of unexpected financial setbacks. This can act as a safety net and prevent defaults.
- Choose a Suitable EMI Payment Date:
Coordinate your EMI payment date with your salary date to ensure that you have sufficient funds in your account. Late payments can result in penalties and negatively impact your credit score.
- Opt for a Longer Loan Tenure:
Extending the loan tenure can significantly reduce your monthly EMIs. While this may lead to paying more interest in the long run, it can provide short-term relief to your monthly budget.
- Invest Wisely:
Invest your savings intelligently to generate additional income that can help cover your EMIs. Consult a financial advisor for suitable investment options.
Conclusion
Managing your home loan EMIs doesn’t have to be a daunting task. By adopting these different strategies and methods, you can take control of your finances, reduce the stress associated with loan repayment, and work towards the goal of homeownership with confidence and ease.
Ensure you are periodically reviewing your home loan to identify opportunities for optimization. Accordingly, you can consider switching to a more favorable scheme or lender if it benefits you financially. Remember that each individual’s financial situation is unique, so it’s essential to choose the approaches that align with your specific needs and goals.
