Decrease Your Housing Loan Tenor When Cash Flow Gets Comfortable


The real estate sector in India has been struggling with price escalation and lack of financial mobility following demonetisation. It has resulted in a stagnation of property prices across India. This factor, coupled with inflation in the average wages of consumers, is expected to enable borrowers into availing home loans more comfortably. Financial planners expect the current FY to be financially beneficial for prospective homebuyers owing to these factors.

In addition to the factors mentioned above, there have been several initiatives taken by the government to improve the state of housing loans and the real estate sectors. Along with the government, financial institutions in India have also adopted several measures for the convenience of borrowers.

How to reduce home loan tenor with comfortable cash flow?

Comfortable cash flow is proof of a stable income and responsible management of financial obligations. The cash flow of an individual can be gauged from his/her FOIR or Fixed Obligations to Income Ratio.

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Proper cash flow or FOIR can help you decrease your home loan tenor in two ways.

  • Apply for higher EMI payments in between the tenor

There can be two instances when your purchasing power increases or percentage of FOIR decreases – your income has improved or your fixed financial obligations have reduced. In case, you already have an existing housing loan and any of the aforementioned instances have improved your affordability, you can apply for higher EMIs with your respective financer. Increasing your EMIs would effectively shorten your repayment tenor as then you would be repaying the same amount in larger instalments which will consequently result in a shorter tenor. It is one of the how ways you can trim your home loan tenor.

For example, Mr X pays an EMI of Rs.35,989 on a home loan of Rs.40 lakh at an interest rate of 9%. Its repayment tenor during application was decided at 20 years or 240 months. His income during the 3rd year of loan repayment went up, which lowered his FOIR to 30%. He decided to reduce his tenor by 5 years and applied for a hike in EMIs. As his balance after 3 years stood at Rs.37,53,535, his EMIs were increased to Rs.42,716 against shortening the tenor to 12 years instead of the remainder of 17 years as per the previous loan term.

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You can use an EMI calculator to gauge by how much you can shorten the tenor if you increase the EMIs in tune with your income or FOIR.

  • Part prepayment

You can also decide to part prepay your loan when you have excess funds available. When you prepay a portion of your loan obligation in advance, the amount is directed towards the repayment of the principal amount. It results in lower EMIs and lesser interest payment on a loan, or shortening of the tenor. When you make a part prepayment, the financer provides you with the option to lower the EMI amount keeping the tenor constant or shorten the tenor keeping the EMI value constant. It is one of the ways to reduce home loan tenor and EMI.

You can also opt for a housing loan balance transfer if you do not possess the necessary finances to opt for a part prepayment to reduce your repayment tenor. There are certain things to keep track of when you do a home loan balance transfer, such as home loan rates.

You can opt for a home loan online apply to enjoy convenient processing when transferring your balance to a financer with low-interest rates or better home loan terms. Maintain positive cash flow and FOIR with proper financial planning to repay your home loan at the most beneficial loan terms.

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