Major banks in the country have started increasing the interest rates of home loans again. RBI increased the repo rate by 1.4% in the last 3 months, due to which the home loan rates of various banks have also increased from 6.5% to 8%. Market analysts believe that the RBI may further hike the interest rates and take the repo rate to 6%, in which case the home loan interest rates will increase further.
Often, after the interest rates increase, people get the loan tenure extended so that their pockets are not extra burdened. But this is the wrong strategy. Due to the extension of the EMI tenure, homeowners have to pay a lot of interest for the entire loan tenure.
Investment expert Pranjal Bhandari said, in this era of rising interest rates for savings, homebuyers should increase the amount of EMI instead of increasing the number of EMIs. This will enable them to make huge savings throughout the loan tenure.
If you are an existing customer, don't panic. Home loans have a tenure of 15 years and above. During this time you will have to go through several interest rate cycles. Homebuyers should prepay the home loan. This will save interest by reducing the loan tenure. Also, borrowers can opt for a balance transfer in case the loan becomes costlier.
If you are taking a home loan now, you can opt for a hybrid loan. Take a fixed rate loan for the first three years. Later convert it to a floating rate. This will ensure that interest rate fluctuations will not affect the tenure or installment of the loan. Remember that a loan on a fixed rate may be slightly higher than that of a floating rate.
If there is a loan before October 2019, then potentially it can be in MCLR or Base Rate or BPLR. Post-2019 home loans are given under the External Benchmark Rate (EBR). If the loan is old then check its interest rate. If there is more interest then you can bring it in EBR by paying a nominal fee. This will result in some savings every month, which will be visible in the long run.
