As interest rates keep rising, your EMI will become higher. Here’s how much the increase will be and what you can do to soften the blow
Reserve Bank of India governor Shaktikanta Das announced a 50 basis points (bps) hike in the repo rates. This will amount to a hike of 0.5 per cent. While several banks, including HDFC Bank, have already hiked interest rates on home loans, today’s hike will get translated into higher home loan interest rates sooner than later. Here’s how much a 50 bps hike can make your equated monthly instalments (EMIs) dearer.
According to back-of-the-envelope calculations, an increase of 0.5 per cent in home loan rates will make your EMI dearer by 4 per cent.
Further, data provided by andromedaloans.com shows that for a loan amount of Rs 30 lakh over a tenure of 20 years and at an existing interest rate of 6.75 per cent, the EMI will go up from Rs 22,811 to Rs 23,711 if rates go up by 0.5 per cent. For the same tenure and rates, the EMIs for a loan of Rs 50 lakh, the EMI will increase from Rs 38,018 to Rs 39,519.
With interest rates rising and your home loans expected to become dearer, what should homebuyers do? One option is to pay an increased EMI amount, the other is to extend the tenure of the loan.
Banks, typically, extend the tenure of the home loan, keeping the EMI constant. However, it is advisable to go for a higher EMI instead of a higher tenure as the total interest outgo becomes higher if the tenure of the loan is increased. To look at how much difference it will make to your interest outgo, read here.
Increasing the EMI may be easier said than done for those who may already be facing cash flow issues or who can’t afford to pay extra. However, there are other ways to handle the crisis. You may gave to do your due diligence and a cost-benefit analysis before going for any of the measures suggested in this article.
Last but not the least, real estate prices are increasing. Combined with increasing interest rates, this can be a challenging time for homebuyers. Read more here and find out what’s the best way forward.