16 JUNE, 2022

If you are planning to avail a home loan, the first thing you would probably like to know is the repayment amount. In financial terms, the amount you pay monthly towards a loan is called Equated Monthly Instalments or EMI. The higher your EMI, the more pressure it can put on your budget. Therefore, while you avail a home loan, you must know your EMI amount and how you can keep it within your budget. It would also help you to know the factors affecting your EMI. If you are availing a home loan, here are the factors that affect your EMI. 


Factors affecting your home loan EMI


  • Loan tenure

The duration in which you repay the loan is called tenure. The tenure you chose has a direct bearing on your EMIs. If you opt for a long tenure, your EMI is distributed over a longer duration. As a result, your EMI obligation monthly is less. Similarly, if you opt for a shorter tenure, your EMIs will be higher. Therefore, you must choose your tenure carefully, considering your affordability and budget while applying.


  • Interest rate fluctuations

When there is any change in home loan interest rates, there can be a corresponding change in your EMI. Typically, this happens with a floating interest rate home loan. If the Reserve Bank of India (RBI) revises the repo rate, it can impact the interest rates and thus your EMI. So, it can be both negative and positive. For example, during the pandemic, there had been rate cuts due to which home loan interest rates were at an all-time low. When the interest rate increases, the lender can revise your tenure to accommodate the additional EMI amount. Also, the type of interest rate can impact your EMI. Fixed interest rates on home loans are slightly more expensive than the floating interest rate. So, if you have a fixed interest rate, your EMI could be higher.


  • Prepayment

Prepayment means paying off your loan before the loan tenure ends. When you pay off a part of your loan, the housing loan amount decreases, which can reduce your loan EMI too. However, if you choose to opt for prepayment, you must know that lenders often charge prepayment charges that can be a percentage of the loan amount. Experts believe you must check the prepayment clause while you avail the loan. Also, negotiate with the lender to reduce your prepayment penalty.


  • Home loan balance transfer

If you switch your loan from one lender to another, you can get lower interest rates and thus reduce your EMI. However, you must do a cost-benefit analysis to calculate savings from the home loan balance transfer. Similarly, paying a higher down payment can help you get a lower EMI.


These aforementioned factors are typically uniform across the lender you choose, and the year you avail the loan. Knowing about these factors can help you choose the right lender and tenure. Moreover, while you apply for a loan, it is best to check your EMI through a home loan calculator.

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Disclaimer: This Article is for information purpose only. The views expressed in this Article do not necessarily constitute the views of Kotak Mahindra Bank Ltd. (“Bank”) or its employees. Bank make no warranty of any kind with respect to the completeness or accuracy of the material and articles contained in this Newsletter. The information contained in this Article is sourced from empaneled external experts for the benefit of the customers and it does not constitute legal advice from Kotak. Kotak, its directors, employees and the contributors shall not be responsible or liable for any damage or loss resulting from or arising due to reliance on or use of any information contained herein.