Home loan rates rise by 2.5% in 20 months — how much has your EMI increased?

This increment of ₹158 per lakh might seem nominal for every lakh borrowed, but for larger loan amounts or longer tenures, the cumulative effect could significantly impact the total repayment amount over the loan's lifetime.

Adhil Shetty, CEO of BankBazaar, said “The sustained rate hikes have burdened borrowers, with more than half reporting a 1-3% increase in interest rates, adding ₹2,000-₹10,000 to their EMIs.”

Chakrivardhan Kuppala, the Co-Founder of Prime Wealth Finserv, also highlighted the shift in mortgage rates.

In 2021, the average rate stood at around 3.27% for a 30-year fixed mortgage. However, as of now, the average rate has more than doubled, soaring to 7.12%.

This doubling of mortgage rates indicates a percentage increase in the interest that borrowers would pay for a 30-year fixed mortgage.

For instance, if someone borrowed at the average rate in 2021 and maintained the same loan terms into the current period, they would be paying significantly more in interest payments over the loan's lifetime due to this drastic increase in rates.

Ratan Chaudhary, Head of Home Loans at Paisabazaar, indicated that while the recent stability in the repo rate may suggest a respite for borrowers, the series of rate hikes since May 2022 has created a challenging environment for those with floating interest rates.

He said: “Despite the current stability, existing borrowers have experienced multiple EMI increases due to successive repo rate hikes.”

Since the initial surge in May 2022 due to global inflationary pressures, the repo rate has soared from 4% to its current 6.5%.

The key concern now lingers on the horizon of potential rate hikes by major lenders.

As external benchmark rates directly impact floating interest rates on home loans, decisions by banks and non-banking financial companies (NBFCs) to increase rates further hinge on multiple factors such as economic conditions, central bank policies, and market dynamics.

Looking ahead, Chaudhary highlighted the nuances in the lending landscape, mentioning, “Lenders have adjusted home loan spreads and credit risk premiums to accommodate borrowers. Many banks are offering discounts to applicants with robust credit histories, even amid repo rate increments, thereby reducing home loan interest rates for those with higher credit scores.”

As borrowers navigate these challenging times, the prospect of potential rate hikes remains a critical point of concern.

Amid this uncertainty, the possibility of exploring alternatives like switching to lower home loan rates or continuing to prepay parts of the loan persists as strategies to alleviate the burden of escalating EMIs.