An Ideal Guide to Perfectly Deal with the Rise in Housing Loan Rates in India

In the past few years, the market for home loans in India has proven to be quite volatile. This is primarily because of the fluctuations in home loan interest rates, prompted by policy changes put forward by the Reserve Bank of India. Even though interest rates for these advances have reduced in the 3rd quarter of 2019, the situation was unfavorable for borrowers in 2018, when financial institutions had hiked their MCLR, and consequently raised lending rates. Thus, for a long term financial commitments like home loans, it is crucial for borrowers to be prepared with contingency plans in case of a rise in housing loan rates.

A Glance at India’s Home Loan Market
Rs. 13,500 Crore – Average monthly housing credit disbursement from the last quarter of 2018.

18.6% - Year-on-year growth of housing loans as of April 2019.

3.66% - Increase in the percentage of housing credit lending between FY 2013-14 and FY 2018-19.

The best way an existing or potential borrower can deal with rising home loan interest rates is by employing methods to reduce their EMI payments.

There are multiple ways of how borrowers can deal with above-par interest rates on their home loans to avoid missed EMIs or defaults.

For Existing Borrowers
Existing borrowers under the floating interest rate regimes are often exposed to the perils of the volatility of fluctuating lending rates. To curb the liabilities that can occur under this scenario, individuals can adopt the following strategies to lower their EMI payments –

Opt for a Home Loan Balance Transfer
The facility of a home loan balance transfer, offered by select financial institutions, allows borrowers to shift the outstanding balance of their existing advance from one lender to another. Since lenders usually offer MCLR based lending rates, individuals can choose to transfer their existing loan to a lender offering the best housing loan rates.

But with financial institutions shifting to the new repo rate-linked lending regime, the disparity in interest rates offered by different lenders is expected to narrow down soon.

Negotiate Terms with Your Lender
If borrowers have a spotless credit history in their favor, they can negotiate the terms of availing the credits with their lenders and subsequently decrease their home loan interest. This can help them avail a lower home loan interest rate than what is mandated.

Opt for Loan Prepayment
The availability of additional funds can compel a borrower to opt for a loan prepayment their loan in part or full before the end of the tenure. Prepaying the advance can help individuals to reduce their overall interest payment by quite a margin. But financial institutions often impose some fees and charges on individuals for choosing prepayment and foreclosure. It is crucial to check the quantum of home loan fees and charges levied, before availing this facility.

For Prospective Borrowers

For new borrowers, the best way to minimize interest payments is to conduct proper research and compare the available home loans in india to choose the one offering the most affordable interest rates. They can also adopt the following strategies to lower their EMI payments –

Opt for a Longer Loan Tenure
Opting for a longer tenure automatically means lower EMI payments. But on the flip side, longer tenures can be detrimental because individuals end up paying more overall interest on their loan amount in the long run.

Make a Larger down Payment
Lenders usually finance about 80%-90% of the total value of a property with borrowers making the initial 10%-20% down payment for it. If you can contribute a higher amount as a down payment, you can reduce your LTV or loan-to-value ratio and subsequently decrease your loan repayment liability.

Being mindful of these few strategies can allow borrowers to keep their interest payments in check, even in the face of rising home loan interest rates. It is, however, crucial to be well-informed about the terms set by lenders before availing the advance to maximize your utility from the same.