Lowering your home loan EMIs can make your monthly budget easier to manage. By using some simple strategies, you can reduce your payments and save money. In this article, you’ll find easy steps to help cut down your home loan EMIs, making your payments more affordable and saving you money in the long run. Learn about options like refinancing and changing your loan term to make your home loan payments fit better into your budget.
See also: What are your options if you default on your home loan EMIs?
Switching to a new lender
Switching your home loan to a new lender can help you lower your monthly payments. Here’s how it works:
How it helps
- Lower rates: New lenders often offer better interest rates, which means lower monthly payments.
- Shorter term: A lower rate can also let you pay off your loan faster, reducing overall interest costs.
- Extra perks: You might get better repayment options or additional benefits with a new lender.
Before you switch
- Check if there are any costs for transferring your loan.
- Be aware of any penalties for paying off your loan early with your current lender.
- Gather all required documents for the transfer.
- Look at different lenders to find the best deal.
When it’s worth considering
- If interest rates have dropped since you took out your loan.
- If you’re not satisfied with your current lender’s service.
- If you need more flexible repayment options.
Keep a strong credit score
Having a high credit score helps you get better loan offers in the future. Pay your home loan and other debts on time to keep your credit score healthy. This is especially useful if you think about refinancing or need extra funds later.
A high credit score, especially above 750, can help you get lower interest rates because lenders prefer customers with good credit histories. Tailor your strategies to fit your financial situation, and seek advice if needed to handle high-interest rates and maintain financial stability.
Prepayments and part-payments
Prepayments
Extra payments made on top of your regular EMIs to pay off the loan principal faster.
Part-paymentsÂ
One-time payments towards the principal, in addition to your regular EMIs.
How they help
Reducing the principal lowers your remaining balance. Smaller principal means lower monthly payments. Paying off the principal faster shortens the overall loan period. A shorter term means less total interest paid.
Advantages
You can pay off your loan quicker and achieve financial freedom sooner. Make extra payments whenever you have extra funds making it flexible. Significantly cut down on interest payments.
Things to check
Some lenders charge fees for early payments, so check for any penalties. Ensure that making extra payments won’t affect your financial stability. Keep an emergency fund to handle unexpected expenses.
Check with your lender for any fees or restrictions before making additional payments.
Recast your EMI after large prepayments
Most banks default to reducing your loan tenure when you make a large prepayment. However, if your monthly EMI feels unaffordable, you can instead request the lender to recalculate the EMI based on the new outstanding amount while keeping the original tenure intact. This is known as EMI recasting.
For example, if your EMI is ₹34,460 on an ₹80,000 salary, a large prepayment (say ₹13–14 lakhs) can lower your EMI to a more manageable level. This helps maintain liquidity and avoid financial strain without disrupting the repayment cycle.
While not all banks advertise this option clearly, many allow it upon request—especially after a substantial lump-sum prepayment. Note that:
- Some lenders may allow you to reduce both EMI and tenure, but most permit only one.
- Recasting EMI does not typically harm your future loan eligibility, since banks now consider your income-to-debt ratio, not just EMI size.
If your priority is monthly affordability over faster closure, always opt to lower EMI instead of tenure after large prepayments.
Annual EMI prepayment strategy: The 13th EMI rule
One simple and effective way to reduce your home loan burden is by making one extra EMI payment every year—commonly known as the 13th EMI strategy. This method is especially useful for salaried individuals who receive annual bonuses or incentives.
How it works
Let’s say your EMI is ₹35,000 per month. If you pay one additional EMI of ₹35,000 every year, you’re reducing your principal without disturbing your regular monthly cash flow. Over time, this strategy can cut your loan tenure by 2–3 years on a 20-year loan and save several lakhs in interest payments.
Even if you can’t afford a full EMI, prepaying a fixed sum like ₹1 lakh per year can still produce meaningful reductions in interest and tenure.
Why this works well
- You’re paying more towards the principal early, when interest forms a major part of your EMI.
- Unlike increasing your monthly EMI (which may strain your budget), this method lets you plan a once-a-year surplus.
- It’s psychologically easier to commit to a single extra payment per year than a long-term increase.
Best practices
- Align the extra EMI with your bonus cycle or year-end surplus.
- Use a loan amortization calculator to see the exact interest savings.
- Keep track of prepayments and get them officially recorded with your lender.
- Check if your bank recalculates EMI or reduces tenure after each prepayment; opt for tenure reduction if you want long-term interest savings.
Optimise EMI structure for higher prepayment impact
Ask your lender for the lowest possible EMI, even if it increases your loan tenure. This lowers your mandatory monthly outflow. Then, every month, pay the minimum EMI and use any surplus funds to make voluntary prepayments.
For example, if your original EMI is ₹50,000 (with ~₹45,000 going toward interest), reducing the EMI to ₹30,000 and prepaying ₹20,000 every month shifts more of that money directly toward principal reduction. Over time, this strategy drastically reduces your interest outgo and loan tenure—even more effectively than sticking with a higher EMI.
Using Repo Rate Cuts to Optimise EMI and Prepayment Strategy
When the RBI lowers the repo rate, your home loan interest rate (especially if on a floating rate) is likely to drop. While this naturally reduces your EMI or tenure depending on how your lender recalculates, it also presents an opportunity to optimise your repayment strategy.
Many borrowers consider reducing their EMI by extending the tenure to free up cash for prepayments. While this may seem appealing, it’s not the most effective way to save on interest. Lower EMIs mean a greater portion of your payment goes toward interest in the early years, diminishing the impact of prepayments.
A better strategy is to maintain your original EMI or even opt for a higher EMI if you can afford it. Then, use any surplus funds to make regular prepayments. This approach directly cuts down the principal early—when interest outgo is highest—thereby reducing the total interest paid over the loan’s lifespan.
If your financial goal is to minimise interest payments, always prioritise tenure reduction or prepay with EMI constant. Use falling interest rates as a way to accelerate repayment, not delay it.
Step-down EMI plan
A step-down EMI plan is a structured repayment option offered by select lenders where the EMI amount starts higher in the initial years and gradually reduces as the loan progresses. This is the reverse of a step-up EMI, where payments increase over time.
This model is ideal for borrowers who currently have a strong income stream but anticipate a decline in earnings in the future—such as those nearing retirement, planning a career break, moving to part-time roles, or expecting increased family responsibilities (like childbirth or caregiving).
The financial benefit of this structure lies in its front-loaded interest repayment. In the early years, when EMIs are higher, a larger portion of the interest is cleared off quickly, thereby reducing the overall interest burden. As the principal begins to shrink and interest liabilities reduce, the EMI amount also comes down, easing monthly cash flow during later stages.
Borrowers benefit from:
- Accelerated repayment of interest in the early years.
- Lower EMIs during the later part of the tenure when income may not be stable.
- A predictable EMI reduction schedule, unlike tenure recalculations after ad hoc prepayments.
However, not all banks offer this by default. It’s often available through structured products or on request during loan sanctioning. Borrowers should ask for the amortization schedule to see how EMIs are planned to reduce and compare this with traditional or step-up EMI options. Also, this plan may be better suited for those not prioritising early loan closure but preferring manageable long-term payments.
Go from fixed to floating interest rates
If you have a fixed-rate loan, it’s worth reviewing the current floating rate trends. Over time, floating rates usually end up being lower. Consulting with a financial advisor can help you assess the potential benefits of switching to a floating rate, especially in today’s high-interest environment. Fixed-rate loans often come with higher interest rates, typically 1-2% more than floating rates. If you stick with a fixed rate, you might pay more in interest over the life of your loan. Exploring a switch could save you money, but be sure to check for any exit fees before making a decision.
Opt for a shorter loan tenure
Opting for a shorter loan tenure can help you save a lot on interest, even though it might mean paying higher EMIs each month. With flexible tenure options available, you can choose a duration that fits your financial comfort.Â
A shorter tenure means you’ll repay the loan faster, which reduces the total interest you pay over time. This approach not only leads to quicker home ownership but also gives you more financial freedom sooner.
However, it’s important to ensure that the higher monthly payments fit into your budget. Consider a shorter tenure if your income is stable, you want to reach financial goals faster, or if you expect interest rates to increase in the future.
Add a co-borrower to share EMIs
Applying for a home loan jointly with a spouse or parent can ease the repayment load. Many lenders allow EMI contributions from both co-borrowers, making it easier to manage monthly outflows. This also improves loan eligibility and may help secure better terms. Both co-borrowers can claim separate tax deductions under Sections 80C and 24(b), provided they are co-owners and co-payers.
Loan restructuring during hardship
In case of job loss, medical emergencies, or financial disruptions, you can request your lender to restructure your loan. Banks may offer relief such as tenure extensions, EMI deferments, or interest moratoriums under RBI-approved frameworks. While this may affect your credit score, it can help avoid loan default and give you time to recover financially.
Housing.com POV
Even the most rigid home loan can be made flexible if you understand how the system works. Lenders won’t hand you better terms—you have to ask the right questions, push for recalculations, and treat prepayment as a strategy, not just an option. The goal isn’t just lower EMIs—it’s control over your cash flow. Think of EMI reduction not as a relief tactic, but as a deliberate reshaping of your financial structure.
FAQs
EMIs (Equated Monthly Installments) are the fixed monthly payments you make towards your home loan. They include both principal and interest components.
Reducing EMIs can lower your monthly financial burden, increase your disposable income, and potentially accelerate your loan repayment.
Principal amount, interest rate, and loan tenure are the key factors that determine your EMIs.
Refinancing involves obtaining a new loan with a lower interest rate to replace your existing loan. This can potentially reduce your EMIs.
If you have a good credit history and have made timely payments, you might negotiate a lower interest rate or more flexible terms.
A step-up EMI plan starts with lower EMIs and gradually increases over time. It can provide relief in the early years of the loan. What are EMIs in a home loan?
Why is reducing home loan EMIs important?
What are the primary factors affecting home loan EMIs?
What is refinancing and how can it help reduce EMIs?
How can I negotiate with my lender to lower my EMIs?
Should I consider a step-up EMI plan?
| Got any questions or point of view on our article? We would love to hear from you. Write to our Editor-in-Chief Jhumur Ghosh at jhumur.ghosh1@housing.com |
