For the majority of people, a home loan is the largest debt a person ever incurs in their whole lifetime. It also happens to be the only loan that comes with a longer repayment period owing to the amount. The process of paying off a Bank of Baroda home loan can be exhausting due to the fact of how lengthy it is that sometimes it takes people up to 25 years to complete their loan amount. The equated monthly payments (EMIs) of your home loan might strain your monthly budget if you don’t make advance preparations. As a result, the majority of home loan applicants are always searching for methods to lower their EMI or equivalent monthly installments (EMI) outgo. Remember that the principal amount, interest rate, and loan term are the three main variables that affect your Kotak home loan EMI. The key is to find the right balance of interest rate, loan amount and tenure to repay your home loan debt comfortably.
Modify your interest pricing regimen
A significant portion of home loan borrowers become so preoccupied with their lives when home loan repayment begins that they frequently fail to monitor how the makeup of their EMI is changing. The way banks calculate loan interest rates has undergone significant change during the last 10 to 12 years. For instance, all loans were tied to the Benchmark Prime Lending Rate (BPLR) before July 1, 2010, however starting on that day, the BPLR was replaced with the base rate. All floating rate bank loans were connected to the Marginal Cost of Funds Based Lending Rate (MCLR) after April 1, 2016, which was later modified to the External Benchmark Rate (EBR) on October 1, 2019. Depending on when your home loan amount disbursed, it is possible that your loan would be continuing in the same old regime if you have not switched to a new regime. Although all interest rate regimes should, in theory, impose the same rate, this does not really occur. As opposed to a loan tied to the EBR, you may be paying a significantly higher interest rate under the earlier regimes of BPLR, base rate, or MCLR. There is a significant probability that your interest rate and, consequently, your EMI, would decrease if you switched from a traditional loan to one that is tied to the EBR. You need to approach your bank to modify the chances in Kotak home loan or Bank of Baroda home loan or any other place you have taken a loan from.
Transfer your existing loan to a new lender
Although numerous banks and housing finance companies provide home loans, the interest rates they impose vary greatly. Because your loan is not from a lender that offers competitive rates, there is a considerable likelihood that you will be paying a higher EMI. Whether you haven’t reviewed interest rates, now is a good opportunity to do so and see if your lender is still charging you more than what the EBR allows. The only expense you will incur will be the fee imposed by the new lender because the majority of home loans are on a flexible rate basis and there is no penalty for switching your loan. If you get a competitive rate from somewhere, a balance transfer of your Bank of Baroda home loan will considerably help you bring down your EMI.
Change the rate from fixed to floating
The likelihood is that you would have paid a substantially higher interest rate throughout the course of the loan if you had taken out a fixed-rate loan. On loans with fixed rates, lenders normally levy a premium of at least 1% to 2%. For instance, fixed-rate loans now have interest rates of about 10.5%, when five years ago, variable-rate loans were available for 9% interest. Additionally, if the borrower chose a fixed-rate loan, s/he would now be at a disadvantage. Although floating rate interest rates have decreased to about 7%, fixed-rate borrowers would still be required to pay higher interest rates of 10.5%.
Pay a portion of the EMI in advance and get the total EMI adjusted
Borrowers with floating-rate home loans have a lot of freedom when it comes to partial prepayment without incurring any penalties, which they may use to lower their EMIs. Any partial prepayment has a substantial influence on the length of your loan since the money is used entirely to reduce the amount of principal still owed by you to the bank. As a result, the loan’s term is shortened and it is paid off more quickly. If you do not want to shorten the term, you might ask your Kotak home loan lender to lower your EMI following a sizable prepayment.
Go for a tenure extension
Consider extending the loan tenure if you are under any form of financial strain and wish to get some relief. A tenure extension will lower your Bank of Baroda home loan EMI. For instance, increasing the term to 20 years will help you lower your EMI by Rs 15,257 if you have 10 years left on your home loan with a balance of Rs 40 lakh at 7.5%. However, not all borrowers will be successful with this alternative, particularly those who are nearing retirement age. Most lenders give the longest possible term until the borrower turns 60. Therefore, a borrower who is 45 years old could not be able to increase the term beyond 15 years. Additionally, you must keep in mind that the longer the tenure of your loan, the higher will be your interest outgo. Though you can use the tenure extension as a short-term temporary measure. It is suggested by experts that as your finances improve you should either restore the old tenure or make a partial prepayment to speed up the repayment process.
Pay more during your down payment
The majority of banks and Bank of Baroda home loan finance organisations provide loans up to 75% to 90% of the entire value of the property, with the remaining 10% to 25% needing to be paid out of your pocket. Making a greater down payment than simply 10% or 25% is usually preferable if you have extra funds available. The principal loan amount decreases with a bigger down payment, which immediately lowers the total interest paid and in turn your EMI outgo.
Keep your credit score high
There is a good probability that Kotak home loan or lenders may provide you with better interest rates for home loans if your credit score is high—say, greater than 700. With a high credit score, you will be in a position to bargain with your lender for better payment terms.
As a home loan borrower, you should keep these aforementioned points in mind but at the same time, you should read the terms and conditions of the loan offered by the Kotak home loan along with the fees or charges before signing up.