The home loan EMI should be calculated before applying for a home loan. The EMI should be worked out in order to determine the financial burden that you will have to shoulder every month and how well it fits with your regular expenditure. To boost eligibility for a home loan, you should make sure that your EMI does not exceed 40% of your monthly income without any other existing EMIs that are significant in terms of the amount.
There are several factors that can influence the home loan EMI. Here’s taking a look at the same:
- Interest Rate Changes- Any changes in the home loan interest rate throughout the tenor may positively/negatively impact the EMI. In case the home loan is linked to floating rates of interest, the EMI will change with market lending rates. However, this does not always mean that there are risks of the EMI going up. In recent years, the interest rates on home loans have come down on account of RBI rate cuts.
- Tenor Changes- Changes in the tenor of the home loan will affect the EMI. The longer your tenor, the lower your EMI will work out to and vice versa. However, longer tenors usually mean higher payments of interest which will lead to an increase in the overall cost of the loan.
- Home loan pre-payment- In case pre-payments are made for the home loan, it will lower the principal amount and lower the interest burden as well. However, a percentage may be charged by the lender as the pre-payment penalty.
- Step-Down or Step-Up Loan Repayments- Home loan borrowers can choose step-up repayment plans for home loans which is suitable for those who have started their professional journeys or expect an increase in income over the years. The EMI will increase with the passage of time. Step-Down repayments are ideal for those who will retire in a few years. EMIs of higher amounts are payable initially and will go down with the passage of time.
- Home loan transfers- In case you see that lower interest rates are being offered by another lender, you may transfer the home loan. However, before making the switch, ensure that you will get greater savings by way of lower EMIs and this should be higher in comparison to the overall loan cost.
There are thus various factors affecting your home loan EMI. You should always make provisions for an increase in EMI in the future while applying for a home loan.