Are your home loan EMIs rising rapidly? This is natural since the RBI (Reserve Bank of India) has already declared its new monetary stance which includes an increase in the key policy rate to the tune of 25 basis points. This is now 6.25% from 6% previously. Prior to the increase in policy rates, quite a few Indian banks such as PNB (Punjab National Bank), SBI (State Bank of India), ICICI Bank Limited, Bank of Baroda and Kotak Mahindra Limited had hiked their MCLR rates between 5-20 basis points. The base rate has also been hiked by some of these banks. Are you fretting about the ways to tackle the increasing EMIs for your home loan?
In case your home loan is tied to the MCLR, you should check the reset clause immediately. Floating rate home loans are usually tied to 6 month or 1 year MCLR rates. This indicates that the loan rates will be reset after a specific period of time. This means that you still have time to prepare for the onset of new home loan rates. However, if your home loan is still tied to the base rate, there will be an immediate increase in your home loan EMIs. In such a situation, you can consider a switch to the MCLR system from the base rate. The key is to be prepared for a rising rate scenario for home loans.
Home loans are offered at both fixed and floating rates of interest by Indian banks. This is the first time that the repo rate has been hiked by the RBI over the last 4 years. MCLR was introduced in April 2016 and the first increase was in March this year. At present, floating rate home loans are still more affordable in comparison to loans at fixed rates of interest. You should not jump to a fixed rate home loan as of now since these loans are still higher in terms of the floating rates by approximately 50-100 basis points. New home loan borrowers should still go for floating rate home loans according to experts.
You can also check with your bank whether the tenor of the home loan can be increased with the EMI remaining the same. This will help you combat the possible increase in the monthly EMI that you wish to avoid. In case the increase in rates is up to 25 basis points, you do not require any tweaks but if this is more than 50 basis points, you should opt for a longer home loan tenor. You can also consider pre-paying the loan at regular intervals. This will help you lower EMIs and also save on interest costs. New home loan borrowers should carefully compare rates offered by NBFCs, housing finance companies and banks before taking the plunge and charges like administrative costs and processing fees should also be compared accordingly. In case you have a credit score of 750 or above, you can try negotiating with banks for a lower rate of interest or a waiver on the other charges.