Dealing with the Increasing EMIs of Your Home Loan is Easy with These Tips
A Home Loan enables you to buy the property you have always dreamt of conveniently and then repay the loan over an extended period. Due to rising prices of real estate across all major cities in India, almost all new home buyers are on the lookout for excellent Home Loan deals that will not only help them purchase the desired property conveniently but would also ensure that the EMIs can be managed comfortably. Usually, the amount opted for as a Home Loan usually runs into lakhs of rupees, if not crores, and as a result of the repayment tenure of a Home Loan usually runs up to 20-30 years to make sure that the EMI (Equated Monthly Instalment) amount is according to your repayment capacity. The rate of interest against Home Loans at present starts from 8.40% and varies slightly according to the lenders. The rate of interest against Home Loans is adjusted according to the marginal cost of funds-based lending rate (MCLR) and guidelines of the Reserve Bank of India (RBI).
As a part of its regular monetary policy decisions, RBI adjusts the MCLR which in turn has a direct impact on the interest rate of your Home Loan. Most financial institutions in India are conspicuous by their unwillingness to reduce MCLR if there is a reduction in repo-rate from the RBI but a slight increase in the MCLR leads to immediate enhancement in your Home Loan interest rates. Any increase in the MCLR has a significant impact on your home loan EMIs, which increase significantly and also lead to higher interest outflows with every EMI.
Impact of Increase in Interest Rates
Whether due to RBI policy, prevailing economic conditions or changes in the lending policy of your Home Loan financier, chances are that during the tenure of your Home Loan, your interest rates may witness fluctuations on a periodic basis (in case of variable interest rate Home Loan). If there is a reduction in the interest rates, then it is really beneficial for you as the amount of every EMI will reduce along with the total interest expenses to be borne by you.
But in case there is an increase in the interest rates, it could throw your whole financials into disarray. Not only will the EMI amount to be paid every month would increase substantially, but you will also end up paying more interest over the tenure of the loan. This could put your entire financial planning into the dustbin,and you would be left to prepare a backup plan.
How to Deal with the Increasing EMIs of Your Home Loan?
Well, sitting back and ruing your luck would not solve any purpose, you must be pro-active and take steps that will help you tide over the possibly tough times. Some of the steps that you can take care:
Home Loan Balance Transfer:
Every lender in the market wants such customers who have an excellent payment track and are willing to reduce their interest rates to get their business. So, you should also do your research and identify another lender who will be offering you the option of Home Loan Balance Transfer at Reduced Interest Rates.
The difference in the interest rates should be at least 0.5% so that the savings realized are more than the related financial expenses. By opting for Home Loan Balance Transfer, you not only save on the interest cost, but your monthly EMI amounts are also reduced significantly. You can use this saved money to repay your Home Loan quickly. Moreover, most lenders offer a financial product called Top-up Home Loan Balance Transfer. Herein in addition to the balance transfer amount, you can avail a high-value top-up loan which you can use to strengthen your financials or repay any liabilities.
Foreclosure/Pre-payment of Home Loan:
If your financials allow you to repay the Home Loan before completion of the tenure, you must use that option. This will help you save a significant amount that would otherwise have to be paid on account of interest payments. What makes this option a practical alternative is the fact that most lenders do not levy any additional charges on foreclosure. But only use this option if the Home Loan is at the most six years old. Otherwise, there would not be any real benefit as you would have paid the bulk of interest amount during the first six years itself.
Restructure Your Loan:
If you feel that your monthly EMI liability due to the increase in interest rates has gone beyond your capacity, then you can ask your lender to reschedule the EMIs to bring the monthly payment amount under control.
But this would mean that you will be paying higher interest amounts over the tenure of the loan. But if your financial position allows you to service high-value EMIs, you can opt to reduce the number of EMIs so that the loan is repaid earlier. You will be saving a significant sum of money on this account. It indeedis not under your control to stop your Home Loan interest rates from increasing, but you definitely can take some steps to reduce the impact of such a change on your finances.
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