Home loan equated monthly instalments (EMIs) can significantly strain your monthly budget without proper planning. It's crucial to remember that your monthly installment amount is primarily influenced by factors such as the loan amount, the interest rate, and the tenure. In some cases, inadequate planning may result in you paying more towards your loan.
According to a recent research report by Anarock group, "The floating interest rates for home loans up to Rs 30 lakh have jumped up from 6.7 per cent in mid-2021 to nearly 9.15 per cent today."
In a research report, Prashant Thakur, regional director & head of research, Anarock group, says, "Home loan borrowers who were paying an EMI of approx. Rs 22,700 in July 2021 are now paying approx. Rs 27,300 today - an increase of approx. Rs 4,600 per month. This 20 per cent increase in the EMI has resulted in a jump of approx. Rs 11 lakh in the overall interest component - from approx. Rs 24.5 lakh interest payable in 2021 to approx. Rs 35.5 lakh today."
The total interest payable over a 20-year tenure is more than the principal amount. If a buyer seeks to buy a property worth Rs 40 lakh, factoring in the LTV (Loan to value) ratio, the total borrowed amount is Rs 30 lakh for 20 years. In this scenario, the buyer would have paid an EMI of Rs 22,700 in 2021, when the interest rates stood at approx. 6.7 per cent. "At this rate, the total repayment to the bank was approx. Rs 54.5 lakh, of which the interest component was approx. Rs 24.5 lakh - less than the total principal amount," says Thakur. "Today, when home loan interest rates hover at around 9.15 per cent, this buyer's EMI is approx. Rs 27,300. The total repayment to the bank at this rate is now approx. Rs 65.5 lakh, of which the interest component will be approx. Rs 35.5 lakh - more than the total principal amount," he says.
Says Shweta Jain, the founder of Investography, a financial planning firm: "When EMIs rise, they can upset the whole household budget. You usually have a choice to either increase EMI or tenure when interest rates rise. If increasing EMI is burdensome, you could negotiate on the loan's tenure or renegotiate the interest rates. You could lower the price by paying a fixed amount or even move the loan to another provider with lower charges."
Here are the steps to successfully renegotiate your home loan and regain control of your finances:
Assess Your Financial Situation
Before diving into negotiations, take a close look at your financial situation. Understand the reasons behind the rising EMIs. It could be due to increased interest rates, changes in the loan's
tenure, or fluctuations in the lending institution's policies. Knowing your financial health will help you approach the renegotiation process with confidence.
Contact Your Lender
Reach out to your lender when you realize your EMIs are becoming unmanageable. Explain your situation honestly and transparently. Many lenders are willing to work with borrowers facing financial difficulties to find a solution.
Explore Loan Modification Options
Your lender may offer various options to help you lower your EMI burden. These could include:
Loan Tenure Extension: Increasing the loan tenure can reduce your EMIs by spreading the repayment over a longer period.
Switching To A Lower Interest Rate: If interest rates have decreased since you took out the loan, consider refinancing to secure a lower rate.
Partial Prepayment: If you have some extra funds, consider making a partial prepayment towards your loan, which can reduce your outstanding principal and, in turn, EMIs.
Provide Necessary Documentation
Be prepared to submit the required documentation, such as income proofs, updated credit scores, and any additional paperwork requested by your lender. This demonstrates your commitment to resolving the issue.
Negotiate Terms And Conditions
Engage in a constructive dialogue with your lender to negotiate the new loan terms. Ensure you understand all changes and their implications, such as the impact on the total interest paid over the loan's lifetime.
Review The Revised Agreement
Carefully review the modified loan agreement and ensure all the agreed-upon terms are correctly reflected. Seek legal advice if necessary before signing.
Maintain Financial Discipline
Once your home loan has been renegotiated, commit to maintaining financial discipline. Stick to your new EMIs and continue managing your finances prudently.
Facing rising EMIs on your home loan can be stressful, but it's essential to remember that options are available to help you regain control of your financial situation. By assessing your finances, communicating with your lender, and exploring modification options, you can successfully renegotiate your home loan and continue on your path to homeownership with confidence.