The median price of homes in India is close to Rs. 10 Lakh, with the amount going much higher in Tier-I cities. Rural housing is comparatively cheaper, at a median cost of around Rs. 2 Lakh. In cities like Mumbai, Bangalore and Hyderabad, the cost of an apartment in the city centre can go up to several Crore of rupees.
Home loan statistics you should know
- Average home loan amount for men – Rs. 22.97 Lakh
- Average home loan amount for women – Rs. 27.57 Lakh
- Highest home loan ticket size- Delhi (Rs. 5 Crore)
Additionally, the income of a majority of Indians is not at the same scale. Therefore, it is no surprise that the loan affordability index of India is a not-so-encouraging at just 0.79. In Mumbai, where the cost of real estate is the highest in India, the loan affordability index falls to a dismal 0.21, implying that affording a home is extremely challenging for the residents of the city.
As a future borrower, you can use a loan EMI calculator to determine your own loan affordability.
Is there a solution?
The basic problem faced by individuals looking to purchase a house is the high cost, which in turn, increases the home loan amount they have to avail, ultimately amplifying the EMI amount. Although the RBI has been cutting the repo rate for consecutive months, the benefits may not always be forwarded to consumers. In the last 3 months, the RBI has cut the repo rate cumulatively by 85bps (25+25+35). Correspondingly, most financial institutions have reduced the MCLR by just 5-15bps.
The good news is that there are several ways in which you can reduce the EMI burden of your home loan despite this.
Opt for balance transfer
Balance transfer entails relocating the outstanding amount of an existing debt to a different lender, who offers lower home loan interest rates. In effect, you can reduce your EMI amount with a home loan balance transfer. Make sure that you check the type of lending rate used by your current lender. If you have an old home loan, the financial institution may be using older metrics such as base rate, which are almost always higher MCLR.
Since MCLR was introduced only in April of 2016, older loans need to be reviewed immediately. If your lender uses those rates, it’s advisable to transfer your balance to another lender that follows the MCLR based interest rates.
Opt for a longer tenure
Home loans are long-term advances. You may opt for a tenure as high as 20 years. A higher tenure ensures that the EMI amount is relatively lower. The flip side is that you will be paying a higher interest component, which will ultimately increase the total cost of your loan. You can check the EMI payable and total cost of your loan for different tenures with the help of a home loan EMI calculator.
Part-prepay whenever you can
If you run into surplus funds, consider part-prepaying a certain percentage of your outstanding debt. It will decrease the principal component of your loan, which in turn, will entail a lower interest component. While some lenders charge a nominal part-prepayment fee, others like Bajaj Finserv offer this facility free of any cost.
The question of lowering EMI payment arises primarily when you avail a loan amount which stretches your finances. So, it is advisable that you check home loan eligibility beforehand, and apply for a loan amount that you’d be comfortable repaying. You can find out how much home loan amount you can afford by using an online EMI calculator. Remember that prevention is always better than cure when it comes to managing your finances.