Higher home loan rates – what can you do ?
The rise of interest rates has been a steady factor for the last couple of years. There was a time just a few years back when it seemed that interest rates would reach historically low levels, and banks had started offering housing interest rates at levels as low as 7.25%. For people looking to buy their own homes, these seemed to be very low levels of interest, and seemed sustainable. Further, most economists and experts predicted that India had entered the era of low interest rates (like in the developed countries), and hence there was a low chance that interest rates would go up in the future. However, like most prophecies, this one also came down, and interest rates have climbed ever since then. People who had taken home loans then would now have to pay very high rates of interest, and their EMI levels have also climbed much higher since them. In this era, I came across this article in the Economic Times that seeks to give some tips on what to do in such a situation:
Make no mistake. If you’re also lost in the maze of interest calculation, here are some tips which can help you to manage your loan payment effectively.
- Communicate and re-negotiate: If you’ve been a good customer, then there is always a possibility that you can negotiate with your bank on your home loan term period and the interest rate. Explains Amit Suri, CEO, AUM Financial Planners: “The interest rate that any housing finance company (HFC) charges to you is around 2-3% less than the PLR. In India, this benchmark for every bank is different. It doesn’t necessarily mean that every time there’s a hike in PLR, your interest rate will go up. If you’ve been regular with your payments, you can explore this with your bank.”
- Transfer the balance: If your HFC is not offering you any better option, you can always look at various other home loan schemes. With rising competition among the HFCs, you can use your good payment record to your advantage and do a balance transfer (BT), wherein the unpaid portion of your home loan is transferred to a new HFC at a lesser interest rate. This, however, depends on your personal liquidity position and other mid-term and long term requirements.
- Increase the tenure: If the present inflationary trend, now compounded with an increase in interest rate, has put you in a cash-flow crunch, you can increase the tenure of your home loan. If you’re at the early or mid-stage of your home loan tenure, you can exercise this option. This is advantageous for those who’re on a floating rate because as and when there is a decrease in interest rates, you can re-set your options and for the time being ease out of this pressure.
- Delay tactics: Personal finance experts feel that if you’re currently seeking a home loan, you should wait for some time. The current real estate market is on the verge of a recession and the property rates are likely to cool down in the absence of an increase in supply and lack-lustre demand. Also, real estate, particularly in metro centres, is over-priced. The other thing is the rate of interest for home loan.
- See whether you can pre-pay part or whole: When the interest rate was 7.5%, it was low and you would not consider pre-payment. However, as the interest rate rises, the cost increases and it makes sense to see whether you have funds to pre-pay the whole or significant portions of your outstanding loans (subject to pre-payment charges).
In short, nobody can right now predict what home loans will do in the future, so it makes sense to evaluate all the options that you have and exercise the ones that will lead you even to some small benefit.