Home loan rate high in last 43 years in 2023 / what will be next step of Govt.- Home loan BT, Those that chose floating interest rates are currently dealing with higher EMIs or longer loan terms.
Borrowers shocked. The recent rate increases by the Reserve Bank of India (RBI) have made things even worse for borrowers who chose variable interest rates. They must either pay extra for their equivalent monthly instalments (EMIs) to maintain the original loan tenure or face a significantly longer loan term. “My bank demands that I continue making mortgage payments until I am in my mid-70s.
Over the past 18 months, the interest on house loans with floating rates has increased in step with the rise in the repo rate. . As a result, interest rates on these loans fluctuate in line with the benchmark. Banks have been fast to pass on these higher rates to house loan borrowers as a result of the RBI’s cumulative repo rate hike of 225 basis points (bps) since May 2022. One tenth of a percentage point is referred to as a basis point.
Korukonda’s mortgage has an interest rate of 9% at the moment. When the APR was at 7.25% in 2019, he had taken out the loan.
Albert Arul Prakash Rajendran, 42, argues that the increased interest rate has returned him to where he started despite the fact that he has paid off almost 14 lakh of his remaining loan total over the past two years. He announces, “My loan term is back to the original duration of 15 years.” The interest rate on Rajendran’s mortgage loan was 6.5% when it was granted in 2021; it is now 9%.
The incidents of Rajendran and Korukonda are not exceptional. The majority of homeowners who have taken out mortgage loans are currently suffering the affects of increased loan rates on their finances, either through higher EMIs or longer loan terms, which may have an impact on their other long-term financial goals.
The benefit of leverage, or the loan’s ability to enhance investment in real estate, is also counterbalanced by a considerable rise in interest rates. Taking Korukonda as an example. The total sum due (principal and interest) when he took out the 2.2 crore loan was 4 crore. It amounts to around 6.3 crore at the current rate of 9%. It nearly seems like the principal has been re-added to the total, he claims.
To calculate interest, multiply the outstanding balance by the interest rate, then divide the result by 12. This interest amount is first covered by the monthly EMIs, and then the principal. When interest rates are rising, banks extend the tenure while maintaining the EMI as long as it can pay the interest. However, when the EMI
says Nishant Batra, chief goal-planner at Holistic Prime Wealth and a mutual fund distributor. “If the instalment amount falls short of servicing the interest, the bank will increase the instalment amount as well.”
Another factor is that the interest component is higher in the first years of the loan period.
Consider the situation of Ravi Kumar, an IT expert with a base in Hyderabad. In March 2022, Kumar applied for a home loan with a 6.5% interest rate and a 20-year duration. “When I discovered the modified loan term in my bank’s mobile app, I couldn’t believe my eyes. I initially believed it to be an error, says Kumar, 32.
increased EMIs or extended loan terms?
Borrowers with mortgages can choose from a few different ways to lessen the effects of rising interest rates. But be careful not to use up all of your available funds on EMIs. According to experts, EMI payments shouldn’t consume more than 50–60% of your monthly savings. Additionally, if your budget does not allow it, you can avoid raising your EMI if your loan has less than 20 to 30% of its complete term still to go. By this point, the interest component of the outstanding balance will hardly be 20%.
Making prepayments is the alternate choice. To make partial payments, one may take money out of an employee provident fund (EPF) or public provident fund (PPF). Reducing the principal up front will lower the interest and hold the rise in EMIs in check, according to Batra.
Once a person has been a member of the EPF for ten years, they may withdraw funds to pay for a home loan.
Ninganagouda B, 36, has paid a total of 10.5 lakh in five partial payments over the past six years.
principle repayment. Keep in mind that only public banks permit you to prepay each month without a cap.
Along with carefully planning your EMIs and tenure, you might get the lender to agree to a better rate. Those who have a high credit score will especially profit from this. Undoubtedly, the majority of private banks impose a one-time fee when lowering the interest rate.
Transferring your loan to a different lender is another opportunity to comparison-shop for a better rate. To estimate the net savings on your loan, it is a good idea to figure out the upfront charges.
Best option transfer your Exiting loan in other bank with lowest interest with zero hidden charge No file charge No insurance.
Home loan rate high in last 43 years in 2023 / what will be next step of Govt.- Apply for Home loan BT