Page 56 - Banking Finance March 2023

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Higher home loan EMIs after RBI repo

rate hike; how you can cut total

interest payout

ime to pre-pay your loans? With the Reserve rate from 6.5% to 8.75% on account of the 225 basis repo
T Bank of India (RBI) raising the repo rate by rate hike so far impacts your home loan payout: home loan.

another 35 basis points to 6.25%, your loan
repayment math will change as well. This is the
fifth rate hike by RBI this financial year, and is expected to What should borrowers do?
Monga of BASIC Home Loan recommends revising the
translate into higher loan interest rates for borrowers. The
repayment plan to manage the increased EMI burden. This
good news, however, is that the rates may be close to
can be done by opting for a longer tenure loan to reduce
peaking as experts see the RBI putting a stop to repo rate
the EMI burden, he says. "In such scenarios, the borrower
hikes in the coming months.
would pay a higher total interest amount, but his EMIs
would remain the same. It would help the borrower with
According to Vivek Iyer, Partner and Leader, Financial
their cash flow monthly," Monga tells.
Services Risk, Grant Thornton Bharat, loan EMIs will rise
further in the near future. "With the rise in interest rates
Adhil Shetty of BankBazaar.com says that since inflation is
continuously over the past 5 monetary policies, the deposit
moderating, the rates are somewhere close to their peak.
rates will see an uptick and to keep the Net Interest Margin
He advises prepaying home loans based on availability of
balanced, the rate hikes will be passed to the borrowers
funds since this can shorten the ballooning loan tenor.
which will result in an increase in the EMIs," Iyer tells.
Borrowers can pay 5% of the loan balance every year, which
So what should a borrower do? Experts believe that pre-
will help them pay off a 20 year loan in just 12 years.
paying your loan or hiking the EMIs further are possible
solutions to the increasing interest burden. "Similarly, if you prepay one additional EMI every year, the
loan can be closed in 17 years. If you increase the EMI by
How the repo rate hike impacts your loan EMIs and tenor 5% every year, the loan can be finished in less than 13
Atul Monga, CEO and co-founder of BASIC Home Loan years," Shetty says.
explains that since a major chunk of home loan EMI goes
towards meeting the interest component, with the hike, the Yet another scenario is that if your EMI increases by 10 %
EMI burden is expected to increase significantly. every year, then the loan can be close in 10 years," he
adds.
Adhil Shetty, CEO of BankBazaar.com notes that all consumer
loans have got costlier this year. Borrowers are under Lastly, he advises that borrowers should consider refinancing
pressure of rising EMIs and mounting interest. their home loan if the rate is not in sync with the market or
their credit profile. A difference of 50 basis points warrants
We take a look at how an increase in home loan interest a look, he says.

50 | 2023 | MARCH | BANKING FINANCE