Home loans and how they hurt
Hiral Sachde
New Delhi: Renu Bhargav's dream home is
giving her sleepless nights. After buying the apartment last year with a home
loan of Rs 40 lakhs, she and her husband decided to renovate it. But instead of
thinking about the wall paint and tile colours, they're living with the
uncertainty of just how long will it take them to repay the loan.
Successive rate hikes by the RBI within a few months
have hit both new and existing home loan borrowers very hard.
"Our loan is for 15 years and my husband, who
is now 45 years old, will retire by then. If the bank increases the
installments, the tenure of the loan will also increase. And till then, he will
retire. I really don't know how we are going to repay it. We had planned the
loan according to the time till his retirement," says a helpless Renu, the
housewife
Until now, consumers could look to fight rate hikes
by simply increasing the tenures of repayment so that the EMIs remain constant.
But that too has now got stretched to the maximum with average home loan tenures
rising from 13 to 20 years. So it's now the turn of EMIs to rise.
"Customers, who will actually see an EMI hike
will be close to about 40 per cent. And I believe, we will try to reduce this
whole burden by first increasing the loan tenure and only if we don't have that
option, will we raise the EMI on the customer," says ICICI Bank's senior
General Manager of Retails Assets, Rajiv Sabharwal.
Until three years back, the EMI for a loan of Rs 10
lakhs for a term of 10 years at an interest rate of 7.5% at about Rs 12,000.
With the interest rates hovering at 12.5 per cent, the EMI for the same loan has
now risen by more than Rs 2,500.
New customers are not much better off. Two years
ago, people who could get a home loan Rs 1 lakh can now get only Rs 65,000 as
loan eligibility has come down drastically.
Every 1 per cent hike in the interest rate reduces
loan eligibility by 7 per cent for every lakh of rupees. Consecutive rate hikes
have reduced this further. Little wonder then that banks expect growth in the
home loan business to go up by no more than 20 per cent this year, which would
be probably the lowest in five years.
Courtesy:
IBN Live - http://www.ibnlive.com/news/home-loan-where-it-hurts/37823-7.html
Tips on trimming the EMI bulge
Payal Goel
Mumbai: The Sharmas had taken a home loan
three years ago at a floating interest rate of 8 per cent. With rates at 12 per
cent now, their careful financial planning has taken a hit.
“If interest rates keep rising like this then how
are we going to cope up?” home loan borrower, Rajiv Sharma asks.
Most of India's three million home loan borrowers
find themselves in a similar predicament. They say the ideal thing to do in this
scenario is to prepay the loan. If you don't have ready cash, they suggest
liquidating debt instruments like bank fixed deposits or bonds.
Increasing the loan tenure to keep the monthly
installment constant is not a good idea and should be used as a last resort.
“If you increase the tenure you end up paying a
lot more interest for the same amount of loan,” financial planner Gaurav
Mashruwala said.
Meanwhile, experts recommend floating rates for new
and existing customers. They say floating rates are cheaper and the borrower has
the option of switching to fixed rates at any time but they don't advise the
switch.
The 2 per cent penalty charged by banks and higher
fixed rates make it unattractive.
Existing borrowers, compelled to take a hike in EMIs
as the tenure exceeds their retirement age, can look at adding a younger
co-borrower. The co-borrowers age and income would help keep both EMI and tenure
intact.
But experts feel to avoid heavy burden of rising
rates it is best to pay a large part of your home cost upfront and take minimum
home loan possible.
(With inputs from Ravinder Arora)
Courtesy:
IBN Live: http://www.ibnlive.com/news/tips-on-trimming-the-emi-bulge/37826-7.html
