A housing loan plays a significant role in the transaction to purchase a home. Every person invests the largest ever in their lives to buy a house. A mortgage loan is essential to getting the dream of owning a house fulfilled.
By virtue of the RBI increasing its repo rate, the interest on housing loans jumped to 9.5 to 10%, up from 6.5% four or five years ago. The EMIs have also increased correspondingly.
All banks and financial institutions have transferred the burden of increased rates of interest on home loans to the borrowers. As a result, their EMIs have increased. But the question is: how to reduce the EMI burden? Let us see what options are there to ease the burden!
Home loan transfer
Before making a decision to get the loan transferred to another bank, the beneficiaries should conduct a comparative study of the rates of interest being offered by various banks. If any bank were to offer loans at a lower rate of interest, they could get the home loan transferred to that bank. A decision should be taken after weighing the benefits and finding out whether any charges apply to them. Currently, some banks have reduced their processing charges, and some banks are not charging the fees at all.
Home loans attract two rates of interest: a fixed rate of interest and a floating rate of interest. The floating rates of interest fluctuate with the repo rate fluctuations, as decided by the RBI. Under the fixed-rate system, the rate of interest is the same for the entire duration of the loan. Therefore, compared to floating rates of interest, the fixed rate of interest is pegged at 1.5–2% higher. Currently, many opt for a floating rate of interest. While banks collect 9.5–10% interest on home loans, non-banking financial institutions levy 10.5% interest on home loans. Depending on the quantum of the loan, duration, credit score, and other aspects, the rates of interest vary slightly from bank to bank.
Increased EMI vs. increase in loan tenure
Some banks prefer to increase the tenure of the loan when the rates of interest increase instead of hiking the EMI amount. In such a case, there would be no change in the EMI. But in the long run, the borrower pays more money to the bank. In such a case, the borrower should consult either the bank or the NBFC for a better deal. If the response is not encouraging, the borrower should toy with the idea of transferring the balance of the loan to other banks. If the rate of interest is low, more savings will be available to the borrower, who should make a decision after considering various factors.
