A home loan borrower with Rs 30 lakh outstanding principle may end up paying Rs 4,362 more as equated monthly installment (EMI) considering the full impact of repo rate hike between May 2022 and February 2023, said Adil Shetty, CEO at Bankbazaar in an exclusive conversation with CNBC-TV18.com. The overall interest to be repaid over 20 years, in this case, may go up by Rs 8 lakh, he said.
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This clearly shows that we have crossed the point of easy repayments. Between May 2022 and February 2023, the repo rate has gone up by 250 basis points (bps) leading to a constant increase in home loan interest rates.
"There's no way borrowers can maintain their EMI unless they have been repaying aggressively. The October hike itself indicated that the time for tenor extensions is over. With the additional hikes, borrowers can expect their EMIs to go up. This will be especially severe for those who have not made any prepayments on their loans," Shetty told CNBC-TV18.com.
Banks typically have a tenure of up to working age of 60 years in case of home loan, hence increasing the tenure might be challenging given the number of hikes in recent months.
Here's a table showing increasing EMIs on Rs 30 lakh home loan (with different increased rates scenario):
(Note: The outstanding tenor is 15 years (180 months and original interest rate is 7 percent | Source: Bankbazaar)
And, how this would function in case EMI is kept same and tenure is increased.
Let's take a look:
(Note: The outstanding tenor is 15 years (180 months and original interest rate is 7 percent | Source: Bankbazaar)
Let's see another example too.
Here's a table showing increasing EMIs on Rs 50 lakh home loan (with different increased rates scenario):
(Note: The outstanding tenor is 15 years (180 months and original interest rate is 7 percent | Source: Bankbazaar)
And, how this would function in case EMI is kept same and tenure is increased.
Let's take a look:
(Note: The outstanding tenor is 15 years (180 months and original interest rate is 7 percent | Source: Bankbazaar)
The tables clearly show that in both cases (be it rising EMI, while keeping same tenure or rising tenure and keeping same EMI) looks hard for borrowers. The scenario being — the higher interest rate means a higher monthly outflow, and consequently, a lower eligibility too.
This means more out-of-pocket expenses, which becomes difficult for people to fund. So, people are even considering carefully before investing,
So, what is the way out?
The only option for borrowers is to repay aggressively, Shetty told CNBC-TV18.com.
"Take a good look at your finances and figure out what repayment model works best for you," he said.
Alternatively, borrowers can request to check with bank to understand how are home loan EMIs getting adjusted. They can consider switching to a fixed rate loan rather a floating rate, according to Pramod Kathuria, Founder & CEO at Easiloan.
With fixed home loan interest rate, borrowers have to repay the home loan in fixed and equal installments as per the loan tenure. The advantage here is that the rate would not change even if there are fluctuations or changes in the Indian financial market conditions or trends.
They can also try negotiating with the banks, provided they have a good credit history. Other options are exploring debt consolidation and reviewing their budget, experts say.
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