RBI repo rate hike: Tips for home loan borrowers to deal with higher EMIs

In order to contain inflation, the Reserve Bank of India (RBI) has been hiking the repo rate since May. This has resulted in an increase in lending rates. On 7 December, RBI hiked the repo rate for the fifth time this year in its monetary policy review. The repo rate has been hiked to 6.25 per cent. The latest rise in repo rate will cause higher Equated Monthly Installments (EMIs) because banks will now charge higher lending rates from customers. This rise in the repo rate has not just made personal loans, car loans, and other types of loans more expensive, but it has also made home loans more costly for both existing and new borrowers.

The interest rates have risen by 190 basis points (bps) in the last year, and another hike of 35 bps amounts to a total hike of 225 bps. This implies that if you took out a home loan at 6.75 per cent interest a few months ago, then the same loan will be available at an interest rate of 9 per cent.

Have a look at some tips to deal with the increasing interest rates on home loans:

Try refinancing with your own lender
You can request your lender to charge you a lower rate of interest. There can be a processing fee amounting to a few thousand rupees. But this method is quick and doesn’t demand much paperwork.

Prepayment of loan
You can lower your interest burden by prepaying your loan via an annual bonus or another source of income. According to Adhil Shetty, CEO of Bankbazaar.com, prepaying the home loan as and when the funds are available, you can shorten your ballooning loan tenor. He stated that if you pay 5 per cent of the loan balance per year, then you are able to pay off your 20-year loan in a period of 12 years.

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Pay a higher EMI
If you opt for voluntarily paying a higher EMI, then you will be able to pay off your loan faster.

Refinance with another lender
You can opt for a balance transfer with another lender if you are getting a good deal. It should be noted that processing and legal fees may be charged.

Pre-close if the interest rates are too high
You can choose to fully prepay your loan to protect yourself from financial stress. But note that you may not be able to claim tax benefits and it might cause a loss of savings.

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