Easy way to get bank to cut your home loan EMI now without extending tenure

Just three years ago, home loan borrowers were enjoying some of the lowest interest rates in two decades. Today, they are among the worst-affected groups due to a steep rise in interest rates over the past two years. Loans in the most popular tenure of 20 years have seen an EMI rise of 22% as average floating interest rates increased from 3%. However, the impact of these hikes has not been uniform for all home loan borrowers.

## Why Old Borrowers Are Paying Higher EMIs Than New Ones

Old borrowers often face higher EMIs compared to new borrowers due to how banks adjust interest rates. When rates rise, banks are quick to pass on the increase to existing customers while offering competitive rates to attract new customers. This results in new borrowers benefiting from lower rates, while existing borrowers continue to pay higher EMIs based on the previous rates. Moreover, older loans may be tied to less favorable terms and might not have been updated to reflect current market conditions, leading to a disparity in EMI amounts between old and new borrowers.

## Why This Is the Best Time to Go for Repricing

The current economic climate presents an ideal opportunity for home loan borrowers to consider repricing their loans. Banks are now more willing to negotiate rates due to increased competition and the need to retain their customer base. Repricing can align your loan terms with the lower rates available to new customers. By approaching your bank for repricing, you can reduce your EMI without extending the tenure, making your loan more manageable. It’s important to act now before rates potentially rise further, allowing you to lock in a lower EMI for the remaining term of your loan.

## The Gain from Repricing Your Home Loan of AED 2 Million

Consider the potential gain from repricing a home loan of AED 2 million. If the floating interest rate is 7% and repricing brings it down to fixed 4.5%, the monthly EMI reduction can be significant. For a 20-year loan, reducing the interest rate by 2.5% can lower your monthly EMI by approximately AED 2,000 to AED 2,500, depending on the exact terms and conditions of your loan. Over a year, this reduction translates to a savings of AED 24,000 to AED 30,000. Over the entire loan tenure, the total savings can be substantial, easing your financial burden considerably.

## Check If Your Lender Allows You to Reprice the Loan

Before proceeding, verify if your lender permits loan repricing. Some banks offer this option, while others might have restrictions or fees associated with repricing. Understanding your lender’s policies is crucial to determine the feasibility and potential savings from repricing your loan.

## When to Go for a Balance Transfer

If your bank is unwilling to offer competitive rates, consider a balance transfer. This involves transferring your outstanding loan amount to another lender offering lower interest rates. A balance transfer can result in significant EMI reductions and better loan terms. However, it’s essential to time this move carefully, ideally when interest rates are at a relative low and when you have a substantial portion of your loan tenure remaining to maximize savings.

## Things to Keep in Mind While Going for a Balance Transfer

When opting for a balance transfer, consider the following:

1. Processing Fees: Check the processing fees and other charges associated with the balance transfer.

2. Prepayment Penalties: Ensure there are no prepayment penalties on your existing loan.

3. Loan Terms: Carefully review the terms and conditions of the new loan, including interest rates, tenure, and any additional fees.

4. Credit Score: Maintain a good credit score to qualify for the best rates from new lenders.

By taking proactive steps to reprice your home loan or considering a balance transfer, you can effectively manage your EMIs and achieve significant financial savings without extending your loan tenure.

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