Home loans: Are you ready for a more expensive home loan?

 Home loan interest rates that are lower are always a good deal for property buyers. The repo rate has dropped dramatically over the last two years. Home loan rates have also dropped to new lows, as they are now linked to the repo rate.

However, 2022 is expected to be the year when house loan rates begin to rise again. Do your financial preparation properly to deal with an unexpected increase in house loan rates or tenure. Here's how you can deal with it.

Where rates are now

The Reserve Bank of India (RBI) agreed to hold the repo rates at 4% and the reverse repo rate at 3.35 percent at its most recent monetary policy review meeting. Since May 2020, the repo rate has remained unchanged. Home buyers may now receive financing for less than 6.5 percent, a historic low, but this cannot last indefinitely.

The repo rate is the interest rate at which the RBI lends banks overnight liquidity. If it rises, home loans will become more expensive. If it falls, loans become more affordable. By December 2020, rates had already plummeted to record lows of roughly 6.8%, but they continued to decline into 2021, with some lenders offering rates as low as 6.4 percent. More cuts may not be possible as inflation rises. A few financial institutions have recently increased their fixed deposit (FD) rates, and some lenders' house loans have become slightly more expensive. Borrowers should be aware of these developments. Rising deposit rates imply that lending costs will rise as well.

Check loan benchmark

RBI obliged banks to connect loan interest rates to external benchmarks such as the repo rate or the T-bill rate starting in October 2019. The repo rate of the Reserve Bank of India has become the standard for most banks when it comes to house loans. A repo-linked home loan provides a more stable interest rate and is simpler to understand in terms of pricing, spread, and expected rate changes for consumers. With prior benchmarks, this was not the case.

Examine your current benchmark rates, which may be higher, causing you to pay a higher EMI or have a longer term. Speak with your lender to ensure that your loan is in line with the current repo rate.

Refinance to repo-linked loan

You can either refinance your existing loan with another lender or request that your present lender connect your loan to the repo rate. Repo-linked loans are only available from banks. You may be able to cut your interest rate for a charge if you work with a home loan company. You could save lakhs of rupees over the course of the loan if the rate changes significantly—for example, by 50 basis points or more.

Let's say you take out a Rs 50 lakh home loan with a 7% interest rate for a period of 20 years. The total interest payable on this loan is Rs 43,03,587. On the other hand, if the identical home loan is repaid at a rate of 7.5 percent, the total interest payment will be Rs 46,67,118.

Consider one pre-payment at the start of the year

Prepaying your debt can help you pay it off faster. Even a single more EMI prepaid at the start of your loan can shave months off the loan term, saving you thousands of dollars. For example, if a 50 lakh loan is taken out for 20 years at 7% interest, prepaying 5% of the loan at the start of each year can assist pay off the loan in 111 months rather than 240. Your total interest would also be reduced from Rs 43.03 lakh to Rs 17.7 lakh. You must adhere to the lender's minimum pre-payment policy. Some lenders will accept 1x your EMI, while others may want 3x.

Marginally increase EMI if income rises

When your monthly income rises, it's a good idea to increase your EMI because it will shorten the term of your house loan and lower your interest rate. To save interest, you must select to increase your EMI by a little amount. The percentage increase should be dependent on the rise in your net income. The amount you pay in excess of your regular EMI will be applied to the principal rather than the interest. As a result, instead of needing to meet the minimum pre-payment requirement, you can pre-pay your dues in smaller amounts.

The cost of loan interest is one of the most significant aspects of home ownership, often exceeding the cost of the property itself. To keep your costs down, it must be kept under control. Changing the conditions of your loan payment could save you a lot of money.

Conclusion

There's no need to be discouraged if your personal loan application is turned down. To boost your chances of loan approval, simply work on improving your credit report and following the methods outlined above. Once you've completed this checklist, you're ready to submit your personal loan application.To find about the best pricing and deals, call our toll-free number +91-9477079053. They'll help you in every way they can. Please contact me at Best Home Loan In India if you have any more.