3 min
15-November-2024
A home loan is often the largest financial commitment one makes in life. Many borrowers may wonder how they can optimise their home loan EMIs or tenure to achieve better financial stability. Making part payments, adjusting EMIs, or reducing loan tenure can significantly affect both monthly cash flow and the total interest paid over the loan term. While reducing your EMI offers immediate relief, shortening the tenure can save you more money in the long run by reducing interest costs. In this guide, we will explore the impact of part payments, and whether it’s better to reduce your EMI or shorten the loan tenure, helping you make informed decisions to manage your home loan efficiently. Understanding these options allows borrowers to tailor their loan repayments according to their financial situation and long-term goals.
Reduction in Principal: A part payment directly reduces the principal amount, which in turn decreases the interest burden on the remaining loan balance.
Impact on EMI and Tenure: Depending on your preference, the lender may offer you the option to either reduce your EMI amount or shorten the loan tenure. Both choices have their benefits:
Reducing EMI: You will have lower monthly payments, making it easier to manage your monthly budget.
Reducing Tenure: By shortening the loan term, you can repay your loan faster and pay less interest overall.
Interest Savings: By reducing the principal amount, the interest you pay on the remaining balance will also be reduced, saving you money over the long term.
Pre-closure or Part-Payment Fee: Some lenders may charge a fee for early repayments, though this is often a one-time cost. It’s important to check the terms and conditions of your home loan.
Impact on Loan Moratorium: In certain cases, a part payment may allow the borrower to skip a few EMIs. However, this depends on the lender's policy.
Revised Loan Statement: After part payment, the lender will issue an updated loan statement that reflects the new loan balance and revised EMI or tenure, as per your preference.
Improved cash flow: Reducing your EMI lowers your monthly repayment amount, offering relief to your finances and providing more disposable income.
Flexibility: Lower EMIs make it easier to manage household expenses, emergencies, or other financial goals, reducing financial pressure.
Reduced default risk: With a smaller EMI, you are less likely to miss payments, reducing the risk of default or penalties.
Benefits of reducing loan tenure
Lower interest payments: A shorter loan tenure means you will repay the loan faster, leading to significant savings on the interest.
Quicker loan closure: A shorter tenure means you’ll be free of debt sooner, offering financial freedom.
Improved credit profile: Paying off the loan earlier can positively impact your credit score and improve your financial reputation.
Extended loan repayment period: While reducing EMI provides immediate relief, it extends the overall loan period, meaning you might pay more interest over time.
Less pressure on your budget: A lower EMI ensures you are not financially stretched each month, reducing the chances of missing payments.
Impact on financial planning: If you have planned for a specific loan tenure, reducing the EMI could interfere with those plans, possibly delaying full repayment.
Faster debt repayment: Shortening the tenure leads to quicker loan closure, allowing you to be debt-free sooner and avoid long-term interest payments.
Impact on EMI: Reducing the tenure will increase your monthly EMI, but in return, you will pay off the loan faster and save money.
Offers short-term relief but can extend the repayment period, leading to higher overall interest costs.
Provides more flexibility in the short term but less financial freedom in the long run.
Reducing tenure:
Saves money on interest payments over time, as the principal is paid off faster.
While EMIs may rise, the long-term benefit of reduced interest costs outweighs the short-term inconvenience.
Making the right decision between reducing your EMI or tenure depends on your financial goals. If you’re focused on immediate relief, reducing your EMI is beneficial. However, if your priority is to save money in the long run, shortening the tenure is the smarter choice.
Review your loan statement
First, ensure that the part payment is reflected correctly in your loan statement. This will give you the exact reduction in principal and show how much you owe.
Assess your financial goals
Determine whether you want to ease your monthly budget by reducing your EMI or save on interest by shortening the loan tenure. This decision will guide you on what action to take.
Contact your lender
Reach out to your lender or bank and inform them of your intention to either reduce your EMI or shorten your tenure. The lender will guide you through the options and help process the change.
Submit a formal request
You may be required to submit a formal written request or an application stating your preference—whether you want to reduce the EMI or shorten the tenure. Ensure you have all necessary documents and the part payment receipt.
Understand the impact on your EMI or tenure
If you opt for reducing the EMI, your lender will recalculate the amount you owe and adjust your monthly payment accordingly, lowering the amount you need to pay each month.
If you decide to reduce the tenure, the bank will adjust your repayment period, resulting in a higher EMI but a faster loan closure.
Check for any processing fees
Some lenders may charge a fee for reducing EMI or tenure. Verify if there are any processing or administrative fees before proceeding.
Receive confirmation and updated loan details
Once your request is processed, the lender will send you updated loan terms, reflecting the new EMI or tenure. Ensure you receive a revised repayment schedule and loan statement that includes the changes.
Monitor your payments
After the change is made, keep track of your EMI payments to ensure they match the new amount. Also, continue to monitor your loan status regularly to confirm the adjustments have been applied correctly.
By following these steps, you can easily adjust your home loan EMI or tenure after making a part payment, depending on your financial preference and goals.
Learn more about part period interest in home loan and can we change home loan tenure?.
What happens after part payment of a home loan?
Part payments are a common strategy for borrowers to reduce their home loan burden. By making a lump sum payment, you reduce the outstanding principal, which can have multiple benefits. Here’s what happens after a part payment of a home loan:Reduction in Principal: A part payment directly reduces the principal amount, which in turn decreases the interest burden on the remaining loan balance.
Impact on EMI and Tenure: Depending on your preference, the lender may offer you the option to either reduce your EMI amount or shorten the loan tenure. Both choices have their benefits:
Reducing EMI: You will have lower monthly payments, making it easier to manage your monthly budget.
Reducing Tenure: By shortening the loan term, you can repay your loan faster and pay less interest overall.
Interest Savings: By reducing the principal amount, the interest you pay on the remaining balance will also be reduced, saving you money over the long term.
Pre-closure or Part-Payment Fee: Some lenders may charge a fee for early repayments, though this is often a one-time cost. It’s important to check the terms and conditions of your home loan.
Impact on Loan Moratorium: In certain cases, a part payment may allow the borrower to skip a few EMIs. However, this depends on the lender's policy.
Revised Loan Statement: After part payment, the lender will issue an updated loan statement that reflects the new loan balance and revised EMI or tenure, as per your preference.
Should you reduce your EMI or loan tenure?
Benefits of reducing EMIImproved cash flow: Reducing your EMI lowers your monthly repayment amount, offering relief to your finances and providing more disposable income.
Flexibility: Lower EMIs make it easier to manage household expenses, emergencies, or other financial goals, reducing financial pressure.
Reduced default risk: With a smaller EMI, you are less likely to miss payments, reducing the risk of default or penalties.
Benefits of reducing loan tenure
Lower interest payments: A shorter loan tenure means you will repay the loan faster, leading to significant savings on the interest.
Quicker loan closure: A shorter tenure means you’ll be free of debt sooner, offering financial freedom.
Improved credit profile: Paying off the loan earlier can positively impact your credit score and improve your financial reputation.
How reducing EMI affects your finances?
Less immediate financial strain: By lowering the EMI, you get more financial flexibility, easing your current cash flow and allowing you to allocate funds for other essential needs.Extended loan repayment period: While reducing EMI provides immediate relief, it extends the overall loan period, meaning you might pay more interest over time.
Less pressure on your budget: A lower EMI ensures you are not financially stretched each month, reducing the chances of missing payments.
Impact on financial planning: If you have planned for a specific loan tenure, reducing the EMI could interfere with those plans, possibly delaying full repayment.
How reducing tenure can save you money?
Lower interest outgo: By reducing the loan tenure, you cut down on the interest cost, as interest is calculated on the principal for a shorter period.Faster debt repayment: Shortening the tenure leads to quicker loan closure, allowing you to be debt-free sooner and avoid long-term interest payments.
Impact on EMI: Reducing the tenure will increase your monthly EMI, but in return, you will pay off the loan faster and save money.
Long-term financial impact of reducing EMI vs. tenure
Reducing EMI:Offers short-term relief but can extend the repayment period, leading to higher overall interest costs.
Provides more flexibility in the short term but less financial freedom in the long run.
Reducing tenure:
Saves money on interest payments over time, as the principal is paid off faster.
While EMIs may rise, the long-term benefit of reduced interest costs outweighs the short-term inconvenience.
Making the right decision between reducing your EMI or tenure depends on your financial goals. If you’re focused on immediate relief, reducing your EMI is beneficial. However, if your priority is to save money in the long run, shortening the tenure is the smarter choice.
Steps to reduce EMI or tenure after a part payment
When you make a part payment towards your home loan, it opens the option to either reduce your EMI (Equated Monthly Installment) or shorten the loan tenure. Here are the steps involved in either option:Review your loan statement
First, ensure that the part payment is reflected correctly in your loan statement. This will give you the exact reduction in principal and show how much you owe.
Assess your financial goals
Determine whether you want to ease your monthly budget by reducing your EMI or save on interest by shortening the loan tenure. This decision will guide you on what action to take.
Contact your lender
Reach out to your lender or bank and inform them of your intention to either reduce your EMI or shorten your tenure. The lender will guide you through the options and help process the change.
Submit a formal request
You may be required to submit a formal written request or an application stating your preference—whether you want to reduce the EMI or shorten the tenure. Ensure you have all necessary documents and the part payment receipt.
Understand the impact on your EMI or tenure
If you opt for reducing the EMI, your lender will recalculate the amount you owe and adjust your monthly payment accordingly, lowering the amount you need to pay each month.
If you decide to reduce the tenure, the bank will adjust your repayment period, resulting in a higher EMI but a faster loan closure.
Check for any processing fees
Some lenders may charge a fee for reducing EMI or tenure. Verify if there are any processing or administrative fees before proceeding.
Receive confirmation and updated loan details
Once your request is processed, the lender will send you updated loan terms, reflecting the new EMI or tenure. Ensure you receive a revised repayment schedule and loan statement that includes the changes.
Monitor your payments
After the change is made, keep track of your EMI payments to ensure they match the new amount. Also, continue to monitor your loan status regularly to confirm the adjustments have been applied correctly.
By following these steps, you can easily adjust your home loan EMI or tenure after making a part payment, depending on your financial preference and goals.
Learn more about part period interest in home loan and can we change home loan tenure?.
