Interest Rates On Home Loans Surpass 9%; Here Are Some Ways How You Can Reduce Your EMI Burden

Reserve Bank of India kept the repo rate unchanged at 6.5% for the seventh consecutive time, leaving home loan borrowers grappling with the impact of persistently high interest rates. Despite expectations for a reprieve, major lenders such as HDFC and Bank of India have recently increased their loan rates, exacerbating the financial strain on borrowers.

Since May 2022, the central bank has incrementally raised the repo rate by 250 basis points, reaching the current 6.5%, marking the onset of a rate hike cycle. For borrowers with floating interest rates tied to the repo rate, this translates to an increase in the cost of existing home loans.

Recognizing the challenges faced by borrowers, financial experts advise proactive strategies to navigate the prevailing economic landscape. According to insights from Bankbazaar's Shetty, here are key steps borrowers can consider to alleviate their financial burden:

Understand the Benchmark

Borrowers should familiarize themselves with the benchmark rate that determines their loan interest. Since October 2019, floating home loan rates have been linked to the repo rate. However, loans tied to older benchmarks like the Marginal Cost of Funds Based Lending Rate (MCLR) or base rate may result in higher interest payments. Switching to repo-linked loans could offer potential savings.

Evaluate Loan Spread

The loan spread, determined by factors like credit score and income sources, significantly impacts the interest rate. With a noticeable reduction in home loan spreads since 2020, borrowers can explore options to secure a lower spread for future benefits, potentially reducing their interest burden.

Consider Loan Refinancing

Assessing current loan rates against prevailing market offers can help borrowers determine if refinancing is viable. Engaging with the existing lender or exploring refinancing with another institution could result in lower interest payments, albeit with associated costs such as processing fees and legal expenses.

Prepay to Lighten the Load

Those with the financial capacity can consider prepayments to reduce the outstanding loan amount, thereby decreasing interest liabilities. Whether through periodic additional payments or lump-sum prepayments, borrowers can effectively shorten the loan tenure or reduce monthly EMIs, contingent upon their financial situation and the impact of such actions.

Despite the challenges posed by the current economic scenario, borrowers are urged to assess their options diligently and consider seeking professional financial advice to navigate the complexities of home loan management amidst fluctuating interest rates.

As economic dynamics continue to evolve, borrowers must remain vigilant and proactive in managing their financial commitments to mitigate the impact of rising interest rates on their long-term financial well-being.