Home Loan EMI: Home Loan Interest Rates are Rising; how does it Affect you?

The RBI lowered its repo rate to 4% due to the impact of COVID-19 on the economy. However, in light of the recent scenario, the home loan EMI interest rates are likely to go up, although the change might not come into effect immediately.

Change of home loan rates and its effect 

Borrowers must understand that if the interest rates are low, it will benefit them because one will be paying a lower EMI. On the other hand, if the interest rates increase, the interest payable and home loan EMI rises as well. For instance, if there is even a 0.25% increase in the interest rate, the EMI payable will be affected.

Hence, borrowers can either increase the number of EMIs or opt for prepayment as a solution. Experts recommend availing the latter as it will bring down the overall cost of interest. Besides, this is one of the ways to reduce home loan tenor and EMI. Nevertheless, one must not forget the tax implications and make decisions accordingly.

Factors affecting home loan interest rates 

There are multiple factors that affect the interest rates of home loans. It is important to remember them to make a sound borrowing decision. They are listed below:

  • Benchmark lending rate 

There are primarily two types of lending rates: Repo Linked Lending Rate and Marginal Cost of Funds based Lending Rate. The former keeps altering according to the changes brought in policy rates and are correlated to the RBI’s repo rates. On the other hand, the latter can change within 6 months, 1 year etc., and financial institutions take this decision.

  • Loan to value ratio 

It is the maximum amount a lender extends to a borrower as a percentage of the property’s current market value. However, borrowers can also opt for making a higher down payment to reduce the total loan amount.

  • Repayment tenor

Borrowers can opt for a longer repayment tenor, resulting in reduced EMIs payable. However, one will end up paying a significantly increased borrowing cost on choosing a longer tenor. Applicants who want to know how to calculate home loan EMI can make use of the home loan EMI calculator.

  • The location of the property and its condition 

A property’s value is based on its location and the amenities available, apart from its condition. Lenders will offer lower interest rates on new properties with good amenities within close reach.

  • Profile of the applicant 

Individuals with a stable income and high credit score can get affordable home loan interest rates. There is no doubt that one’s credit score can determine the home loan EMIs he/she has to pay. However, applicants must keep handy the home loan documents while applying for the same.

  • Type of interest rate 

Borrowers can opt for a housing loan at fixed, floating or mixed. However, consistency remains for fixed interest rates throughout the loan tenor. On the other hand, floating-rate alters according to the policies introduced by the RBI.

Borrowers must look for leading financial institutions offering high-loan amounts at the lowest interest rates. Also, lenders like Bajaj Finserv extend pre-approved offers to streamline the application process. These offers are also available on several financial products, such as home loans, loans against property, etc. Individuals can check their pre-approved offers by providing their essential contact details.

Since the home loan EMI interest rates are likely to go up, it is best to borrow now. Nevertheless, applicants must consider the above factors before applying for a home loan.

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