Rs 10 lakh home loan EMI: Factors that affect the EMI & How to minimise it

An ambition among most Indians, is to buy their own homes. It is one of their high-priority financial goals, apart from their children’s education. The feeling of living in one’s own house cannot be compared with other worldly pleasures.

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However, having one’s own house is not a cakewalk in today’s world of skyrocketing property prices. Even a Rs 10 lakh home loan EMI can be too much for many people in India. Home seekers generally have two options – either to buy a plot and construct your house from scratch or buy a retail house and modify it, based on your preferences. Irrespective of the option you choose, the cost usually overshoots your budget.

Fortunately, there are numerous financing options now available at your disposal. You can take a home loan from any bank or non-banking finance company (NBFC), P2P (Peer-to-Peer) lender, housing finance companies (HFCs), etc., to name a few. The Rs 10 lakh home loan EMI will vary, based on the lender you choose and a plethora of different factors.

Factors that decide your Rs 10 lakh home loan EMI

There are multiple factors involved in arriving at the final installment amount that a borrower is expected to pay every month. These factors are as follows:

Interest rate: This is a key deciding factor that differentiates one home loan from another or more specifically, one lender from another lender. The interest rate determines how much you will have to pay over and above what you borrowed. It will then subsequently impact your Rs 10 lakh home loan EMI amount, as a lesser interest rate means less interest to be paid and thus lower EMI. Before taking a home loan, you should first compare different lenders online, to get the lowest interest rates.

The tenor of the loan: The next factor that has a significant role to play in your Rs 10 lakh home loan EMI calculation is the tenor of the loan. This refers to the maximum duration for which you are taking the home loan. If your cash flows are inconsistent and you are uncertain about them, then, it makes more sense to opt for a longer tenor for your home loan. The maximum tenor of home loans in India is 30 years and the minimum tenor depends on you. The longer the tenor of your home loan, the smaller the EMI amount.

Loan amount: This is another crucial aspect when it comes to estimating the EMI amount for the home loan you are planning to take. The loan amount also depends on your current income levels, your existing debt, your repayment capacity, the value of the collateral (if provided), the number of dependents in your family, etc. The lender decides what amount to lend you, based on an analysis of all the aforementioned factors.

Credit score: This is another factor that indirectly affects the monthly installment amount on your home loan. The credit score is a three-digit score that is computed by credit bureaus like TransUnion CIBIL, Crif Highmark, Experian, Equifax, etc. This score signifies your capability to repay the loan you are taking. If your credit score is low, then, the lender might increase your loan’s interest rate or lower the loan amount. Any of this action will again affect the amount you are expected to pay. Likewise, a good credit score also means you can negotiate with the lender and decrease the interest rate on your Rs 10 lakh home loan EMI.

Location of your house: This is another pertinent factor that again plays an indirect role in deciding the Rs 10 lakh home loan EMI amount. If your house is new and is in a posh location, then lenders see it as a positive sign as its resale value will be higher. They might give you some rebate on your home loan interest rate. The vice-versa is true as well, if your house is not in a great location or is old. In this case, a higher interest rate will again tweak your Rs 10 lakh home loan EMI.

Loan-to-value (LTV) ratio: This is the ratio of the amount being paid by taking a loan to the total amount needed. Simply put, it is the percentage of the amount being financed via a home loan. Lenders usually cap it at 80%, which means they will give 80% of the total amount needed and the remaining amount has to be paid as a down payment by the borrower. Now, we will see how this will impact the Rs 10 lakh home loan EMI amount. If the LTV ratio is higher, it means a higher amount is taken via a loan and this increases the credit risk. Thus, the lender will charge a higher interest rate as well. However, if you pay a higher down payment and take a loan for a lower amount, say Rs 10 lakhs, then, this 10 lakh home loan EMI will be much lower in comparison to the previous scenario of a higher LTV ratio.

These were some of the direct and indirect factors that might impact the amount you will be paying as monthly installments on your home loan. We will now turn our focus to how you can reduce this Rs 10 lakh home loan EMI so that you have to shell out a lower amount every month.

See also: Know about Indian post payment bank IFSC code

What to do if you want your Rs 10 lakh home loan EMI to be smaller?

There are some ways by which you can significantly reduce your monthly installment amount. These ways are explained below:

Longer tenor: Opting for a longer tenor on the home loan means you have to repay the same principal amount in more years. It means a reduction in your Rs 10 lakh home loan EMI, as a longer tenor gives you a breather.

Lower interest rate: Negotiating interest rates with the lender for the home loan will lower the EMI amount. To do that, you should ideally maintain a decent credit score and produce all documents on time that the lender asks for.

Partial prepayment: If you deposit a certain amount anytime during the loan tenor, especially in the early stage of repayment, then, the principal amount on your Rs 10 lakh home loan EMI will get reduced. A partial prepayment means either you can go for reducing the tenor of the loan or lower the EMI amount. You can choose either, based on your convenience and cash flows.

Bigger down payment: When you make a decent down payment on your home loan, it automatically means the principal amount on your home loan and the interest amount payable will get reduced. This means you have to pay a lesser amount in your Rs 10 lakh home loan EMI.

Home loan EMI calculator

There are multiple home loan calculators available online that will help you compute the EMI amount on the home loan you are planning to take. This means, you will know the monthly amount you will be paying every month as the Rs 10 lakh home loan EMI. In this calculator, you will have to enter three values: the loan amount, the tenor of the loan and the interest rate being charged by the lender. One such home loan EMI calculator can be accessed using this link.

The advantage of using these EMI calculators before applying for a home loan, is that you will get to know the EMI amount upfront. Now, if this EMI amount is higher than what you estimated or what you can pay, then, opt for a longer tenor or reduce the interest rates by negotiating with the lender. You can also lower the loan amount by making a down payment to lower the amount on the Rs 10 lakh home loan EMI.

Documents needed to apply for a home loan

Mentioned below is the list of documents that are needed to apply for a home loan.

Identity proofs like PAN card, Aadhaar card, Voter ID proof, driving licence, passport or any other government-issued identity card.
Address proof like electricity bill, water bill, telephone or internet bill, bank statement or any of the identity proofs mentioned above.
Income and tax-related documents like salary slips, Form No 16, income tax returns (ITR) of the last three or five years, bank account statements of the last six months or one year, etc.
Business-related documents for self-employed borrowers like their business’ audited financial statements, profit and loss statement, balance sheet, or cash flow statement, etc.
Check out : Read about Indian bank IFSC code

FAQs

How can you reduce your EMI?

You can reduce your EMI by opting for a longer tenure.

Why is it recommended to use an EMI calculator?

It is recommended to use the EMI calculator, as it will give you an idea about the cash outflow before you apply for a home loan.

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Housing News Desk

Housing News Desk is the news desk of leading online real estate portal, Housing.com. Housing News Desk focuses on a variety of topics such as real estate laws, taxes, current news, property trends, home loans, rentals, décor, green homes, home improvement, etc. The main objective of the news desk, is to cover the real estate sector from the perspective of providing information that is useful to the end-user.

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