Having a house to call their own is one of the greatest ambitions of most Indians. In addition, having your own house can also be your biggest asset. However, accomplishing this financial goal in today’s world of soaring real estate prices is not an easy task. You can either purchase a plot and build your own house or buy a retail house and furnish it yourself. Regardless of what option you choose, the cost will most probably exceed your budget.
Factors that affect your Rs 40 lakh home loan EMI
Following are the factors that can influence your Rs 40 lakh home loan EMI:
Interest rate
Interest rate is one of the primary factors responsible for the difference between two or more home loans. The interest rate decides how much you have to pay every month. Before taking a home loan from any bank, lender, or other financial institution, it is best to compare them based on their interest rates. Choosing the one with the lowest interest rates will result in a lower EMI, making it easier for you to repay your Rs 40 lakh home loan EMI.
Tenure of the loan
The tenure of the loan is defined as the time period you have to repay the loan along with interest. It plays a significant role in determining your Rs 40 lakh home loan EMI. The maximum duration for home loans in India is 30 years and depending on your income and other assets, you can decide the minimum tenure.
In case you are not sure about the consistency of your cash flow, it is better to choose a longer tenure for your home loan. Similarly, if you are sure about your money resources, you can opt for a smaller tenure. The tenure of your home loan is inversely proportional to the EMI you have to pay every month.
Loan amount
The loan amount is another factor that has a substantial impact on your home loan EMI. Depending on your current income, repayment ability, already existing debt, provided collateral’s worth, the number of working people in your family, and employment history, there is a definite amount of loan you avail of.
Credit score
Your credit score also plays a critical role in estimating your Rs 40 lakh home loan EMI amount. It is a three-digit score that is provided by credit bureaus, such as TransUnion Credit Information Bureau Limited, CRIF High Mark, ICRA, Equifax, and Experian. This credit score defines your ability to repay the loan you are borrowing from the lender.
If your credit score is satisfactory, you might be able to get a lower interest rate. Likewise, a low credit score can decrease your loan amount and increase your interest rate, in turn affecting your Rs 40 lakh home loan EMI amount.
Your address
Playing an indirect role in determining your Rs 40 lakh home loan EMI amount is the location of your house. If you live in a posh residential area and your house is in good condition, it means it has a higher resale value and is usually seen as a good sign by the banks.
You may even be able to negotiate the interest rate on your home loan. Similarly, if your house is old, it will lead to a negative impact on your Rs 40 lakh home loan EMI amount.
Loan-to-value ratio (LTV ratio)
The loan-to-value ratio is described as an examination of lending risk that lenders and other financial institutions do before approving a loan. In other words, it is the ratio of the amount being paid by taking a loan to the sum amount needed. It is calculated by dividing the loan taken by the estimated value of the property.
A high LTV ratio means a higher risk loan and if a high-risk loan is approved, it has a higher interest rate. The LTV ratio determines how much amount you need to pay as a down payment and whether you will be given credit by the lender. If you take a loan of Rs 40 lakhs and make a high down payment, then your EMI will be much lower than the EMI in case of a higher LTV ratio.
The factors mentioned above have a direct or indirect effect on your monthly payment. Next, we will discuss how to reduce the monthly outgo of your Rs 40 lakh home loan EMI.
How to minimize your Rs 40 lakh home loan EMI?
Following the ways listed below, you can notably reduce your monthly installment:
Longer tenure
As mentioned before, the tenure of your home loan is inversely proportional to the amount you have to pay every month. This means choosing a longer tenure of the home loan will lessen your monthly EMI. You will have more time to repay your Rs 40 lakh home loan EMI.
Lower interest rate
Getting a loan at a lower interest rate means not having to pay a high amount of EMI. Compare the interest rates of all the lenders and financial institutions before you choose one. Also, make sure you try negotiating the interest rate but to do so, you should have a good credit score and all the required documents. This helps you make a good impression on the lender or bank.
Down payment
Down payment means a particular amount of money you have to pay when buying something expensive, such as a house or car. It is usually done from the buyer’s own funds and is a part of the total purchase.
Since it is cut from the total sum of money you need to pay, it automatically leads to a lower EMI.
Partial prepayment
Paying off early or partial prepayment means depositing money early or paying your monthly installment before the official due date. Making a partial prepayment in the early stage of your home loan will lessen your Rs 40 lakhs home loan EMI.
Based on your resources and convenience, you can either decrease the tenure of your home loan or reduce your monthly installment. Either way, it gives you a breather.
Home loan EMI calculator
Several home loan EMI calculators are available online. Using these calculators, you can easily calculate your monthly payment, total interest payable and total amount. By just entering your loan amount, the tenure of your home loan, and the rate of interest, you can figure out the amount of money you will be paying every month towards your Rs 40 lakh home loan EMI.
You can use a home loan EMI calculator before applying for a home loan and before choosing a lender, to know the EMI amount beforehand. This means you can go for a longer tenure or negotiate the rate of interest if the EMI is more than what you expected. You can also make a down payment or partial prepayment to lower the monthly installment of your home loan.
Documents needed for a home loan
There are certain documents that need to be verified before you are approved for a home loan. They are as follows:
- Identity proof, such as an Aadhaar card, voter ID, PAN card, driving license, passport, or some other government-issued identity card.
- Address proof, such as water bill, electricity bill, internet bill, telephone bill, or bank statement.
- If you are self-employed, you need your business’ audited financial statements (profit and loss), cash flow statements, balance sheets, etc.
- Tax and income-related documents, such as Form no 16, bank account statements of last six months to one year, income tax returns (ITRs) of previous three to five years, salary slips, etc.
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