The last 20 months have witnessed an average home loan interest rate surge from 7% to 9.5%, according to the BankBazaar Aspiration Index. This has led to a rise in equated monthly instalments (EMIs) by ₹158 per lakh, translating to a spike from ₹775 to ₹932 per lakh.
What this means is that there has been a significant increase in average
home loan interest rates over the past 20 months.
For instance, if previously, the EMI for a loan of ₹1 lakh was ₹775, after the rise in interest rates, it increased to ₹932 per lakh.
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.
Here's a table illustrating the increase in EMIs for different loan amounts due to this rise:
| Loan Amount (₹) | Previous EMI (at 7%) | New EMI (at 9.5%) | Increase in EMI |
|---|
| 1 lakh | ₹775 | ₹932 | ₹157 |
| 2 lakh | ₹1,550 | ₹1,864 | ₹314 |
| 5 lakh | ₹3,875 | ₹4,660 | ₹785 |
| 10 lakh | ₹7,750 | ₹9,320 | ₹1,570 |
| 20 lakh | ₹15,500 | ₹18,640 | ₹3,140 |
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.
A look at home loan rates of key banks
| Banks | Starting Interest Rate (p.a.) | Processing Fees |
| Kotak Mahindra Bank | 8.75% p.a. onwards | 2% |
| Union Bank of India | 8.70% p.a. onwards | 0.50% of the loan amount |
| Bank of Baroda | 8.60% p.a. onwards | Up to 0.50% (Min. ₹8,500; Max. ₹25,000) |
| Central Bank of India | 8.35% p.a. onwards | NIL or up to 0.50% |
| Bank of India | 8.45% p.a. onwards | Up to 0.25% for individuals (Min. ₹1,500; Max. ₹20,000) |
| State Bank of India | 8.40% p.a. onwards | 0.17% |
| HDFC Home Loans | 8.45% p.a. onwards* | 0.5% or ₹3,000 whichever is higher |
| LIC Housing Finance | 8.45% p.a. onwards | Up to 0.50% |
| Axis Bank | 9.00% p.a. onwards | Up to 1% or min. ₹10,000 |
| Canara Bank | 9.25% p.a. onwards | 0.50% of the loan amount (min. ₹1,500 and max. ₹10,000) |
(Source: Bankbazaar)
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.
(Edited by : Shoma Bhattacharjee)
