Home loan repayment: Opting for longer tenure? Here's what it could mean for mortgage borrowers

Home loan borrowers have been in a dilemma these past few months. The 190-basis point repo rate hike by the Reserve Bank of India (RBI) since May has forced them to choose between paying higher equated monthly installments (EMIs) to repay their loan in the given period or to opt for lower payments but continue paying installments for a longer duration. While shorter tenures will mean greater burden on your finances, opting for a longer duration of loan repayment might not be the best idea either. According to an analysis by BankBazaar reported by Mint, if home loan borrowers refused to modify their EMIs to account for the rate hike between May and September this year, they may actually end up paying more. According to BankBazaar’s analysis, buyers who took a home loan of Rs 50 lakh for a tenure of 20 years at 7 percent in the past two years have seen the rate increase to 8.9 percent. If these borrowers opted to increase the duration of the loan but not pay higher EMIs, they will have to pay installments for an additional 184 months, resulting in an extra cash outflow of Rs 71 lakh. By contrast, if borrowers opt to keep the tenure unchanged and pay higher EMIs, the additional interest payment will be Rs 14 lakh. A senior banker told Mint that the frequent repo changes in the past few months had seen many lenders not seeking the consent of borrowers on whether they wanted higher interest payments or longer tenure. They extended the duration unilaterally to avoid financial stress on the buyer. Pitfalls of this measure: While lenders prefer to extend tenures of the borrowers, in case a loan repayment period reaches the age at which the individual is expected to retire, banks cannot extend the duration of the home loan. In these cases, a higher EMI is the only viable option. What can be done? Experts have suggested that banks need to work out a solution that involves both increasing EMIs and tenures. Read all the Latest News , Trending News , Cricket News , Bollywood News , India News and Entertainment News here. Follow us on Facebook, Twitter and Instagram.