Higher EMIs Vs Longer Tenures: A Guide For Home Loan Borrowers

In the realm of personal finance, one of the most important decisions you face is managing your home loan. If you are a new homeowner, striking a balance between the monthly EMIs and the loan tenure may seem like a task. The question arises: should you increase your home loan EMI or opt for an extended tenure? While both options have their merits, this discussion aims to shed light on the positive aspects of increasing home loan EMIs or extending the tenure, empowering you to make informed choices and maximize your financial well-being.

Fortunately for you, there are financial institutions like IIFL Home Loans that offer affordable financing through flexible tenures and easy EMIs. You may also want to explore our home loan balance transfer facility to transfer your existing home loan to a new account at lower interest rates.

Now back to the main objective here, let’s deliberate what your best option is to deal with the increase in home loan interest rates.

What Should You, as a Borrower, Do?

Here are a few considerations to help you decide the best solution for a home loan rate increase:

A Combination of Prepayment and Increased EMIs

If you have the financial means, consider prepaying a certain percentage of the outstanding loan amount. Doing so early on in your home loan schedule, when the interest charged tends to be higher, could reduce your outstanding balance.

Combined with the regular monthly EMI payments, you should be able to repay your loan without significant changes in the tenure.

Another way to stick to the original timeline could be to increase your EMIs by a certain amount every year (say 5%) along with the yearly prepayment. With this, you may potentially even reduce the loan tenure. An home loan EMI calculator can clarify how your EMI will change with home loan rate increases.

Did you know that even a yearly 5% increase in EMIs can reduce your loan tenure by up to 9 years?! This should substantially reduce your interest outgo by the end of the repayment tenure.

However, this option may not be feasible for those facing a money crunch. In that case, here’s what you can do to keep up with changes in home loan interest rates.

Balance Transfer to Increase the Loan Tenure

Home loan balance transfer allows you to reduce your EMI burden through lower interest rates than what your current lender is charging you. IIFL Home Loans offers this facility with flexible tenure options (up to 20 years), quick loan approvals, and reduced EMIs against a good credit profile.

It is recommended that you research the company’s affordable housing finance options and compare all the benefits and features you can enjoy.

While increasing the loan tenure may reduce the burden of high EMIs every month, you end up paying higher interest in the longer term. Ultimately, whether you choose to increase your home loan EMI or extend the tenure, the goal is to achieve greater financial stability and the peace of mind that comes with owning your own home.

Bottom line

If you plan to increase your tenure through a balance transfer, use a home loan calculator to see how much interest is charged on home loans. You should not risk creating a bigger burden at the cost of saving some money today.

Consider dipping into a portion of your savings instead to prepay a certain amount of the outstanding loan. Increasing home loan EMIs should be your priority if you have the means. If not, carefully increase the tenure by factoring in your annual income, other financial obligations, and the retirement age.

Explore more about different housing finance options at IIFL Home Loans to get better deals and enjoy increased savings.

FAQs

1. How to choose a home loan tenure that fits your budget?

Factor in the following things:

• Your income and expenses

• Long-term retirement and financial goals

• Understand fixed-rate home loans and floating-interest-rate home loans

• Compare different lenders and their offerings

2. Can I transfer my home loan from one lender to another?

Yes, you have the option to transfer your loan from one lender to another, which is known as a balance transfer. It is typically done to avail better interest rates, improved terms, or superior customer service. However, certain charges or fees may be applicable for the transfer process, and it's recommended to compare the costs and benefits before making a decision. To know more about this service, read more at Balance Transfer with IIFL Home Loans.

3. How can home loan borrowers reduce their debt?

Prepaying a small portion of the outstanding home loan every year can significantly reduce the burden on borrowers. Further, a balanced allocation of assets to take care of other financial obligations can help alleviate debts. Small increases in EMIs, depending on one’s annual savings and bonuses, can help cover debts faster.

4. Does reduced loan tenure mean an increase in EMIs?

If you increase the EMI, you can repay your loan faster, meaning reduced tenure. Whereas if you stretch your loan tenure, your monthly EMIs reduce.