With rising oil prices and the devaluation of the rupee, the prospect of a home loan interest rates hike is looming. We examine how home loan borrowers can plan to cope with the increasing load of EMI.
Several of India's leading banks have recently raised interest rates on many credit products, including home loans. Rising crude oil prices, inflation, global tensions and the depreciation of the Indian rupee against foreign currencies could be some of the big reasons that could lead to further rate hikes in the coming months.
Recent analysis by the Reserve Bank of India (RBI) has shown discrepancies between the growth rates of bank loans and deposits. Banks are cautious about raising deposit rates to avoid rising lending rates, especially at a time when credit growth picks up again. For existing borrowers or potential homebuyers, there is a real prospect of rising interest rates. In such circumstances, there are several ways to deal with these rising interest rates on home loans.
1. Prepayment of home loans
Most banks do not charge a penalty for paying off a home loan early. If you have surplus funds at your disposal, you can pay extra EMI. This can save you a lot of money when interest rates go up.
2. Buy a house immediately
Experts believe that delaying your decision to buy a home can have the opposite effect on your personal finances. Inflation continues to work and destroys the value of your money. So if you keep putting off buying a property, you may have to pay more to buy that property. Interest rate fluctuations are a cyclical process and in the long run the peaks and troughs of interest rates are averaged. Therefore, your borrowing costs should not change significantly. Learn How to calculate business loan by using business loan calculator.
3. Switch to a fixed-rate home loan
If you have a strong belief that interest rates will rise, you can convert a variable rate loan to a fixed rate loan. Banks usually offer fixed-rate loans with maturities of up to 10 years. However, fixed rate lending rates are slightly higher than floating rates. If you have less than 10 years remaining on your loan, an easy way to freeze your EMI liability is to opt for a fixed rate loan. It is important to note that switching from a variable rate loan to a fixed rate loan may not result in a penalty. However, if you wish to return from a fixed rate loan to a floating rate loan in the future, the bank may charge a penalty.
If interest rates rise, so will deposit rates. This will offset the additional costs of servicing the home loan. Several Indian banks have already raised deposit rates.
Comments