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HomeMarketHome loan rate has increased, you should increase EMI or tenure

Home loan rate has increased, you should increase EMI or tenure

New Delhi: In a shocking decision on Wednesday, RBI has increased the repo rate by .40 percent. After this, many banks have also made loans expensive. In these, ICICI Bank and Bank of Baroda have increased interest rates based on external benchmarks. Other banks may do the same in the coming days. This will make the home loan rate costlier. Now the question arises whether people who are having home loan should increase their EMI or should increase the tenure of the loan keeping the installment same.

Experts say that if you do not want to increase the tenure of the loan, then it is better to increase the EMI. But this should not disturb your financial condition. However, most banks have a default option to extend the tenure. The tenure of the people whose loan is going on will increase. If one has taken a loan of Rs 50 lakh at 7% interest for a tenor of 20 years, then its tenure will increase by 18 months at 7.4 per cent. Those who have taken a loan on MCLR will also be affected by this. However, the new rate for them will be applicable from the loan reset date.

Home loan rate: ICICI Bank and Bank of Baroda loans become expensive, know how much your EMI will increase
what the experts say

According to experts, the option of increasing the loan installment can be chosen but it depends on many factors. These include future income growth, contingency funds and the possibility of taking further loans. In such a situation, paying more EMI will reduce the savings. If one extends the tenure of the loan, one can save the extra money and use it to repay another loan. Or he can invest this amount in some place from where he can get the return and equalize the burden of the increased installment.

Home Loan Amount Interest Rate (in %) Duration (Years) Current Installment (in Rs.) New interest rate (in %) Enhanced Installment (in Rs.)
30 million 6.75 20 22,811 7.15 23,530
50 lakhs 6.75 20 38,018 7.15 39,216
one crore 6.75 20 76,036 7.15 78,433

should you prepay
With Home Loan, you can make prepayment without any charges. Experts say that if you have enough savings, then you can repay a small loan every year. Paying 5% of the dues every year would be a good option. If you prepay even one EMI in a year, it can save you a lot. According to experts, due to the increase in interest rates, prepayment of the entire loan should not be done as it will drain your savings in a jiffy. By making small prepayments, the principal amount should be reduced so that the interest burden is taxed.

RBI hike repo rate: Home loan EMI payable? Be ready to pay 1000 more every month, RBI has increased interest rates
For those whose loans are running and linked to the repo rate or any other interest rate benchmark, there will be no change in the installment till the next reset date. The new interest rate on their reset date will be calculated based on the benchmark rate applicable on the reset date and credit spread. This new interest rate will be applicable till the next reset date of their loan. During this period, even if RBI makes any changes in the repo rate in the interim, their interest rate will remain the same. The reduction in repo rate will not have any effect on loans taken at fixed interest rates.

Home Loan Rates: These 10 banks are offering the cheapest home loan, see the complete list

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