Rising EMIs: What You Should Do If You Have Home Loan?

RBI MPC Meeting: Governor Shaktikanta Das announced a hike of 50 basis points in the repo rate on Wednesday. This is expected to push EMIs on home loans higher. What can you do to decrease the burden? Know here

Written by: India.com Business Desk Edited by: Raghav Aggarwal

Published: June 8, 2022, 11:27 AM IST

https://www.india.com/business/rbi-repo-rate-hike-rising-emis-what-you-should-do-if-you-have-home-loan-5440511/

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Home Loan | New Delhi: The Reserve Bank of India (RBI) announced a hike of 50 basis points in the repo rate to raise it to 4.9 per cent. In May, the RBI had announced a surprise hike of 40 basis points in the benchmark interest rate from 4 per cent to 4.4 per cent. RBI Governor Shaktikanta Das announced the measure in a bid to tame the rising inflation, especially in food and fuel.

For the unversed, the Repo rate is the rate at which banks can borrow from the RBI. The burden of this generally falls on the general public. If the banks have to pay a higher interest rate on loans to the RBI, they are most likely to charge higher from their customers too.

With the latest move, the banks are most likely to hike their EMIs further. Since the May 2022 announcement, several banks have already hiked their interest rates on the loans. The latest announcement is most likely to push the EMIs higher.

But what should you do if you have a home loan? Will rising EMIs increase your burden? Is there any way to control it? Have a look at 5 tips you can follow.

What You Should Do If You Have Home Loan?

Look for the lowest interest rate: All the banks in the country do not charge the same interest rates on home loans. The interest rate of HDFC Bank will, in all possibilities, be different from that of the State Bank of India (SBI). Borrowers can transfer their loan from one lender to the other, which provides loans at a lower rate of interest. For most banks, this is a process with no penalty.

Extend the tenure: The longer the tenure, the lower the EMI. If you feel that you cannot pay the EMIs due to financial stress, ask the bank to extend the tenure of your home loan. Most banks offer maximum tenure till the borrower is 60 years old.

Partial Prepayment: Another option is that the borrowers can pay a part of their loan, along with one installment. This will bring down the EMI burden as the amount paid will be adjusted from the outstanding principal amount. The tenure will also get reduced from this.

Exit lower return investments: Borrowers must closely relook at their existing investments. If the investments are providing a lower return than the interest being paid on the home loan, it is advisable to exit that. The amount can be used to partially pay the loan and lower the EMIs in return.

Think twice before applying for a new loan: The borrowers are also advised to check their financial health before applying for a new loan. If the interest rates have risen, you will have to pay higher interest on the new loan, increasing the burden on the existing loan. It is advisable to close the existing loan first.