Over the last 3-4 years, housing loan segment has been in the thick of action with good news of constant rate cuts from 2015 to 2017 and bad news with the constant rise in rates since the beginning of 2018.
The juggle in housing loan interest rate makes it an interesting read for the borrowers. If we live in the present, the rates are going up and so there’s a need to be watchful.
The rates have surged by 30-40 basis points in a span of 6 months. Now, either you would be new to a home loan or are already servicing the debt. Doesn’t matter whether you are a prospective or an existing borrower, you can take into account the tips advised in this article to steady your repayment journey.
What Steps Should You Take to Combat the Effect of Rate Hike If You Are New to Home Loan?
If you are a new customer willing to buy a home on loan, you better research the offers around with respect to the loan amount, interest rate, processing fee, etc. The interest rates must be reasonably lower to bring down the EMIs, which would soothe your pocket against rampaging inflation. Both principal and interest form the installment you are likely to pay over the course of a debt. As you are new, you can get influenced to choose a 30-year loan period to reduce the EMI amount. Yes, the EMI would reduce. But the end result won’t really come in your favour as interest repayment would total to much beyond than what you could think of.
At the same time, don’t choose a very short tenure as the EMI amount could be beyond your reach on servicing a loan of ₹30-50 lakhs or even beyond. You can check the housing loan EMI calculator to draw several repayment results before choosing a one you would be comfortable with.
Also, there’s a need to check the lenders and their background as to how long they have been in the segment and how well they have served the customers around. Only when you find their record to be good and for a long period of time should you apply there.
How Should Existing Customers Cope with Housing Loan Interest Rate Hike?
As an existing customer, you have several options to counter the effect of an increase in interest rates. Check out the options one after another.
Balance Transfer – The best way to counter the rate hike situation is to transfer the outstanding balance from your existing lender to the new one if the latter offers a lower interest rate than the former. By initiating the option of balance transfer, you give yourself the chance to cut down your interest payment. However, it’s advisable when you are a way off from finishing your original loan tenure. It means whether you have just started or are at least 8-10 years away from reaching the actual tenure. The balance transfer would bring down both EMI and interest payment over the course of the remaining tenure.
Part Payment – You can even think of part payment if you have savings to do so. With part payment, the outstanding loan balance reduces and so are the interest outgo, an option widely used by borrowers to keep the adverse effects of the rate hike at bay.