RBI lending rate hike — How to reduce interest burden while repaying home loan?

-

Home loan borrowers will have to shell out more in their equated monthly installments (EMIs) as Reserve Bank of India’s (RBI) Monetary Policy Committee (MPC) hiked the repo rate — the key interest rate at which the central bank lends money to banks — in its latest policy meeting decision. With this rise and four previous increases, the overall lending rates have surged by 225 basis points.

For banks, the lending rates are directly linked to this repo rate. Lately, they have passed on the entire rate hike to customers, amid a rise in borrowing costs.

So, is there a way out that can help borrowers in saving some money?

Homebuyers will now have to rework their strategies to lessen the burden of higher interest outgo on their loans. As far as loan tenure increase is concerned, there is no room for further increase. The loan tenor beyond the 13 years is already done to date, due to 190 bps previous increases.

Also, if borrowers choose the longer tenure now, then the interest will be much higher. Hence, borrowers should go for these options:

EMI increase option

According to Naveen Kukreja – CEO & Co-founder at Paisabazaar, existing home loan borrowers should opt for the EMI increase option, with the consent of their lenders, as and when their interest rates are increased.

“Opting for the EMI increase option would result in lower interest costs than the tenure increase option,” he said.

Borrowers can also increase the EMI amount by 5 per cent every year to reduce the interest repayment burden. They can align this increase with the increase in salary or on receiving any other annual bonus.

Additionally, they can pay one more EMI (than the usual number of EMIs) every year. On combining the two, i.e. paying one additional EMI every year, along with increasing the EMI amount by 5 per cent every year; the interest burden will reduce significantly.

Pre-payment

Experts concur that in an ascending interest rate environment, it is always better to prepay home loans or housing loans as it is a great way to close the debt faster, save money on interest outgo, and reduce EMIs. However, this should be based on a cost-benefit analysis.

If the prepayment isn’t going to save a lot of interest, such as when borrowers make the pre-payment later in the tenor of the loan, then they may want to consider the opportunity cost of making a pre-payment vs. putting the funds in an investment that provides higher returns than the savings from pre-paying the loan.

Transfer the loan to another lender and choose the overdraft option

Existing home loan borrowers having sizeable residual tenure can also transfer their existing home loan to another lender at lower interest and then opt for the home loan saver/overdraft option.

Under the overdraft option, a savings or current account is opened for the home loan borrower to deposit his/her surpluses and is linked to the home loan account. The interest cost of the home loan is calculated after deducting the balance maintained in the savings/current account from the outstanding loan amount. This can lower the interest cost for the borrower. He/she is free to withdraw from the savings/current account as and when any fund requirement arises.

Read all the Latest News, Trending News, Cricket News, Bollywood News,
India News and Entertainment News here. Follow us on Facebook, Twitter and Instagram.



from Firstpost India Latest News https://ift.tt/vdWxmTC
Anshul

Comments

Post a Comment

Popular posts from this blog

Both COVID-19 vaccine doses needed for good protection against B16172 variant

-
It’s been a concerning few weeks in the UK, with the B16172 variant first taking hold and then spreading to become dominant. This more infectious form of the virus, initially identified in India, is what we’re now going to have to live with – unless it is out-competed by another variant in the future. Worryingly, experts had predicted that B16172 might be able to escape some of the effects of vaccines, which if true would threaten to derail the UK’s plans to finish lifting restrictions from the end of June. However, Public Health England (PHE) has looked at the ability of various variants to evade immunity and says that the UK’s vaccines remain effective against the variants circulating, including B16172. On the surface, this looks like good news. But delve a bit deeper, and things get more complicated, says Paul Hunter, professor of medicine at the University of East Anglia. PHE’s research found a little drop-off in protection against B16172 among people who were fully vaccinated.
Read more

New coronavirus variant emerge in India: How should our COVID response change?

-
Image
After genome sequencing of over 10,000 COVID-19 cases in India, researchers have discovered a new variant with two new mutations which may be better at evading the immune system. In 15-20 percent of samples from the Indian state of Maharashtra (the state accounting for 62 percent of cases in the country) a new, double mutation in key areas of the virus has been detected. These are now known as the E484Q and L452R mutations. What makes the variant different? Both these mutations are concerning because they are located in a key portion of the virus – the spike protein – that it uses to penetrate human cells. Spike proteins attach via a “receptor binding domain”, meaning the virus can attach to receptors in our cells. These new mutations include changes to the spike protein that make it a “better fit” for human cells. This means the virus can gain entry more easily and multiply faster. Given what we have seen with other similar mutations , it might also make it harder for our immu
Read more

120 flights delayed, 30 trains running late; Delhi fog & cold wave continue to give shiver to travellers

-
Arrival and departure of 120 flights, both domestic and international, to Delhi airport were affected due to dense fog and cold wave conditions on Wednesday, according to Delhi Airport FIDS (Flight Information Display System). As per the Delhi Airport FIDS, a total of 53 flights, including 21 domestic arrivals, 16 domestic departures, 13 international departures and three international arrivals scheduled are cancelled and not operating due to fog and other operational reasons from and to Indira Gandhi International (IGI) Airport in the national capital on 17 January. #WATCH | Delhi: Several flight operations delayed at IGI airport due to low visibility amid fog. pic.twitter.com/hG1DUKllEt — ANI (@ANI) January 17, 2024 Visuals from the Delhi airport showed passengers waiting outside, checking update of their scheduled flights. There were also some people waiting for flight of their families, friends and loved ones to arrive, which got delayed due to fog. #WATCH | Delhi | Pas
Read more