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How to Reduce your Home Loan EMI

Fuel prices, school fees, electricity bills, phone bills, grocery bills, milk bills and many other bills are ballooning day by day. The salaries have, however, mostly remained stagnant in the best case scenario; or become zero in the worst case scenario of job losses.

Consequently, many families are finding it difficult to pay their home loan EMIs... month after month.

Therefore, reduction in EMIs would come as big relief. Discussed below are some strategies to do so. 

1. Increase the tenure
The simplest and the quickest option would be to increase the tenure if possible. If presently your loan is say till you turn 55, you can request your bank to increase it by 5 years till you turn 60. This will reduce your monthly outflow. Beware. This should be used as a temporary option only. Any increase in tenure will increase the total interest payout and hence should be done very selectively.

2. Prepay but not with tenure-reduction
If and when you can manage, keep prepaying part of your loan from time to time. In most instances, there is no penalty for prepayments. But, make sure to ask for EMI reduction keeping the tenure unchanged. Banks may normally do the opposite i.e. reduce the tenure keeping the EMI unchanged. However, as mentioned in the aforesaid point, this should be done selectively as it would lead to higher total interest payout.

3. Renegotiate the terms
If you are paying higher interest than that being charged to the new customers, you can renegotiate for the lower rate. For this change in rates you would have a pay a one-time fee which is normally around 0.5% of the loan outstanding. Work out the numbers to check whether this conversion is beneficial after paying the one-time charge or not.

4. Refinance the loan
If some other bank is ready to offer you better rates and tenure than your existing lender, you should definitely consider switching your loan. Many find it cumbersome to go through the whole process of availing a new loan and prepaying the old one. Don't. You may end up paying a big price for such reluctance.

5. Change your house
Given the good times in the past, you may have bought a much larger flat than your needs. If so, you can consider selling it and moving to an appropriate-sized flat. This could substantially cut your loan requirement and hence the EMIs.

Remember Robert Schuller's famous words "Tough times don't last, tough people do".

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