Hyderabad: As interest rates are increasing again, your home loan becomes more burdensome. Some banks have already announced that they are increasing their interest rates. The increase in term or EMI has already been informed to borrowers. Let's see what can be done to lighten this burden.
The Repo rate, at which the country's central bank lends money to commercial banks, has started to rise this financial year. On Wednesday, it increased by 35 basis points to 6.25 percent. As a result, home loans have again reached 8.75 to 9 percent. For those who have taken loans at low rates, the interest burden will go up by lakhs. Debt to be settled in 20 years may continue for 30 years.
When interest rate is hiked, the burden will be higher for those who took loans at low rates of 6.75%-7%. The impact is less on those who took loans at 8.5-9 percent. As the interest rate decreases, the loan repayment period decreases. But, once interest rates are increased, the old period will be reached once again.
Also Read: How to take a hassle-free loan to buy dream home or car?
If loan term is extended by two-three years during interest rate hikes, it should be considered excessive. Check the latest status of your loan. What is the applicable interest rate? How much has the duration increased? Check if there is an option to increase the EMI. Contact your bank or financial institution.
An interest rate increase raises equated monthly installment (EMI) or your home loan tenure. For example, you take a loan of Rs 30 lakh at 6.75% for 20 years with an EMI of Rs 22,367. If the interest rate reaches 8.75 percent, the tenure changes to 30 years and the EMI will be Rs 23,610. If the EMI is increased without changing the duration, then it will come to Rs 26,520.
Survey the home loan market to know if there are any institutions offering lower interest rates than your bank. A less interest of half a percent to 0.75 percent will reduce the burden significantly. Sometimes your bank also offers chance to switch to a lower interest rate. It involves some costs, take a decision based on surplus and expenses.
Also Read: Easy loans, credit cards lay a silent debt trap? Wake up before it's too late
Interest rates are expected to increase further. Prepare for it from today. Get rid of any loan charging higher interest early. Always pay loan EMIs on time. Otherwise late fees will be additional burden. Credit score will suffer. An amount sufficient for at least 3-6 months of expenses and loan installments should be available.
Pay off the long term home loan fast by increasing the installment. Low interest can lead to high debt. Your income might have increased by now compared to when you took the loan. Better to increase the EMI as much as your can afford.
