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Sharp increases in home loan rates dig a hole in homebuyers’ household budgets

By on June 13, 2022 0

Home loan rates are still about 150 basis points lower than in 2019.

New Delhi: Last week’s Reserve Bank of India (RBI) policy rate hike is a clear indication that the historic low rate regime is over. In addition, the apex bank’s decision will make home loans more expensive, digging a hole in the pockets of existing borrowers whose savings are squeezed by skyrocketing inflation.

Consecutive increases in interest rates have raised the equivalent monthly installments (EMI) up to Rs 12,000 for those with loans of Rs 1 crore and above.

Considering, for example, a full pass-through of a repo rate hike, the Mumbai home loan of Rs 2 crore, the EMI fell from Rs 159,898 per month before the rate hike to Rs 164,807 in May and now Rs 171,041 in June, according to a report by HEY.

“The bank I got a loan from recently informed me that the EMI will continue to increase based on government rates. This will put additional pressure on the monthly budget for us,” said Ravi Krishnan, who took out a loan of Rs 1.5 crore last year, the financial daily.

It should be mentioned here that home loan rates are about 150 basis points lower than in 2019. Many experts are of the opinion that there are two options to deal with rising mortgage rates. interest. First, the borrower must pay the increased EMI amount provided it does not harm the family’s cash flow; second, ask the bank to increase the term of the loan.

Typically, lenders increase the term of the home loan, which keeps the EMI stagnant. It is, however, a good idea to opt for a higher EMI instead of an increased tenure, as the total interest expense becomes much higher if the loan term is increased.

The publication quoted industry insiders as saying the central bank had raised the repo rate by 90 basis points in two tranches and would likely continue to raise the policy rate to stifle US-based retail inflation. consumer price index (CPI) and reduce the magnitude of the negative real interest rate in the economy, which is still at -1. 8 percent.

Shishir Baijal, Chairman of Knight Frank, told the daily: “The performance of the broader economy will have a greater bearing on market dynamics for the remainder of the year as it dictates income levels for buyers. of house and demand much more directly”.

Meanwhile, many banks raised interest rates on home loans following the central bank’s decision to raise the policy rate by 90 basis points, in two tranches, to 4.90% in a serious attempt to calm still high inflation.