Over the past decade, there have been a lot of changes in the way banks charge their interest rates. Before 1st July 2010, all the bank loans were linked to BPLR (Benchmark Prime Lending Rate), then later on it changed to the base rate. After 1st April 2016, the floating rate of interest was linked to the MCLR (Marginal Cost of Funds Based Lending Rate). And then from 1st October 2019,  it was charged to EBR (External Benchmark Rate). Hence, based on your loan disbursement timing, the loan will remain in the initial regime till the new amendment.

Although interest rates are meant to align with the same rules, that doesn’t always happen. If you’re on a home loan with a BPLR or MCLR base rate, there’s a higher chance your interest rate could be higher than if it were linked to an EBR. Switching to an EBR-linked rate will cause your interest rate to drop according to the repo rate, reducing your EMI.

Consistently making pre-payments can help you reduce your loan liability faster. You can use proceeds from insurance maturity or annual bonuses to make these extra payments. For example, if you have a Rs 50 lakh home loan for 30 years at an interest rate of 9%, your EMI will be around Rs 40,000. If you pay an extra Rs 40,000 annually, you can pay off the loan in just 20 years instead of 30.

Look For A New Lender With Lower Rates

There are several housing finance institutions and banks with different interest rates, and you could be paying more on your EMI because you didn’t choose a lender with the best offer. Be sure to check multiple options and compare interest rates. If you find a lender with an interest rate 50 basis points lower and your loan term exceeds 15 years, switching lenders could help you save a considerable amount of money.

If you're currently paying a Rs 40 lakh home loan at a 7.5% interest rate with 20 years left, consider refinancing with a lender offering a 7% rate. This could lower your monthly EMI by about Rs 1,212 and save you Rs 2.90 lakh over the next 20 years.

Pay Extra EMIs

Adding an extra amount to your EMI every month can help reduce your home loan burden over time. For a home loan of Rs 10 lakh at 7% interest for 20 years, your EMI would be Rs 7,753. If you contribute an extra Rs 2,500 each month, you could pay off the loan in 10 years and 9 months, cutting your loan term nearly in half.

Increase EMI or Pay Additional EMI

Many lenders now offer the option to revise your EMI annually. You can choose to increase your EMI whenever you receive a salary hike.

For instance, if you get a 5% salary increase, you could increase your EMI by 5% as well. It may seem like a small adjustment now, but regularly increasing your EMI can significantly shorten your loan term and reduce the interest paid. In the case of a Rs 50 lakh loan at 10% for 25 years, increasing your EMI by 5% every year could help you pay off the loan in just under 13 years, cutting the original term nearly in half.