Finance
Your Home Loan EMI Is Set To Rise – Here’s Why
Monthly home loan EMIs are set to increase in the coming months due to an expected further hike in the repo rate by the Reserve Bank of India (RBI). When the interest rate rises, lenders usually adjust by increasing the loan tenure. However, there is limited scope for extending the loan tenure now. So, banks and other housing finance companies will increase the home loan EMI if the repo rate is increased further.
Home Loan Interest Rates of Top Lenders in Percent?
Public Sector Banks
| Loan amount | |||
|---|---|---|---|
| Lender | Up to Rs. 30 Lakhs | Rs. 30 to 75 Lakhs | Above Rs. 75 Lakhs |
| Indian Overseas Bank | 7.95 to 8.30 | 8.05 to 8.30 | 8.20 to 8.30 |
| State Bank of India | 7.55 to 8.55 | 7.55 to 8.45 | 7.55 to 8.45 |
| Union Bank of India | 7.40 to 9.15 | 7.40 to 9.35 | 7.40 to 9.35 |
| Bank of India | 7.40 to 9.25 | 7.40 to 9.25 | 7.40 to 9.25 |
| Punjab National Bank | 7.45 to 8.85 | 7.40 to 8.55 | 7.40 to 8.50 |
| Bank of Baroda | 7.45 to 8.95 | 7.45 to 8.95 | 7.45 to 9.20 |
| Punjab and Sind Bank | 7.40 to 8.50 | 7.40 to 8.50 | 7.40 to 8.50 |
| UCO Bank | 7.40 to 7.60 | 7.40 to 7.60 | 7.40 to 7.60 |
| Bank of Maharashtra | 7.30 to 9.20 | 7.30 to 9.35 | 7.30 to 9.45 |
| Canara Bank | 7.05 to 11.85 | 7.05 to 11.85 | 7.05 to 11.85 |
Private Sector Banks
| Loan Amount | |||
| Lender | Up to Rs. 30 Lakhs | Rs. 30 to 75 Lakhs | Above Rs. 75 Lakhs |
| RBL Bank | 10.30 to 12.00 | 8.70 to 9.10 | 8.70 to 9.00 |
| Federal Bank | 8.55 to 8.60 | 8.60 to 8.65 | 8.65 to 8.70 |
| Karur Vysya Bank | 7.15 to 9.35 | 7.15 to 9.35 | 7.15 to 9.35 |
| HSBC | 6.85 to 7.75 | 6.85 to 7.75 | 6.85 to 7.75 |
| Bandhan Bank | 7.30 to 13.50 | 7.30 to 12.65 | 7.30 to 12.65 |
| Kotak Mahindra Bank | >= 7.50 | >= 7.50 | >= 7.50 |
| ICICI Bank | 7.60 to 8.20 | 7.60 to 8.35 | 7.60 to 8.45 |
| Axis Bank | 7.60 to 12.50 | 7.60 to 12.50 | 7.60 to 8.05 |
| Karnataka Bank | 7.74 to 8.99 | 7.74 to 8.99 | 7.74 to 9.09 |
| South Indian Bank | 7.75 to 10.50 | 7.75 to 10.50 | 7.75 to 10.50 |
| CSB Bank | 8.09 | 8.09 | 8.34 |
| Tamilnad Mercantile Bank | 7.95 | 7.95 | 7.95 |
| Dhanlaxmi Bank | 7.85 to 9.00 | 7.85 to 9.00 | 7.85 to 9.00 |
Housing Finance Companies
| Loan Amount | |||
| Lender | Up to Rs. 30 Lakhs | Rs. 30 to 75 Lakhs | Above Rs. 75 Lakhs |
| Bajaj Housing Finance | 7.20 onwards | 7.20 onwards | 7.20 onwards |
| ICICI Home Finance | > = 9.20 | > = 9.20 | > = 9.20 |
| Repco Home Finance | > = 7.45 | > = 7.45 | > = 7.45 |
| Godrej Housing Finance | 7.49 to 10.99 | 7.49 to 10.99 | 7.49 to 10.99 |
| LIC Housing Finance | 7.50 to 8.60 | 7.50 to 8.80 | 7.50 to 9.00 |
| Home First Finance | 8.00 to 18.00 | 8.00 to 18.00 | 8.00 to 18.00 |
| PNB Housing Finance | 7.50 to 16.75 | 7.50 to 16.75 | 7.60 to 10.70 |
| Aditya Birla Capital | 8.00 to 12.50 | 8.00 to 12.50 | 8.00 to 12.50 |
| HDFC | 7.55 to 8.75 | 7.55 to 9.00 | 7.55 to 9.10 |
| Indiabulls Housing | > = 7.60 | > = 7.60 | > = 7.60 |
| GIC Housing Finance | > = 7.74 | > = 7.74 | > = 7.74 |
| Tata Capital | > = 7.75 | > = 7.75 | > = 7.75 |
Impact of Rising Home Loan EMIs
So, what is the impact of rising home loan EMIs? ICRA has said that rising home loans present a challenge to housing finance companies. Generally, lenders increase the EMIs while keeping the tenures constant or vice versa to deal with rising interest rates.
However, incremental loans in the prime home loan segment already have long tenures and increasing them will lead to a huge outflow of interest. It will also expand the tenure beyond the working life of the borrower. Manushree Saggar, Vice President & Sector Head, Financial Sector Ratings said that the impact is expected to be lower in the case of the affordable home loan segment.
But, even with revised EMIs, the increase in FOIR (Fixed obligation to income ratio) is expected to be less than 10% only unless the original loans were given at very high FOIRs. So, the FOIRS are anticipated to be manageable only.
According to ICRA, lenders may not pass on the burden of the increase entirely to the borrower. ICRA said that as per its estimates, HFCs have increased the lending rates by about 50 to 100 basis points (BPS) in H1FY2023 compared to the hike of 190 BPS in benchmark repo rates. Also, some lenders may follow a hybrid course of changing both EMI and tenures to manage the monthly debt burden of borrowers.
Ways To Reduce The Home Loan EMI Burden
#1 Check If You Are Under The Old Interest Rate Regime: If your loan is old and has been taken before October 2019, then the interest rate regimen is likely to be base rate, BPLR, or MCLR. After 2019, all the loans were shifted to the external benchmark rate. So those with old loans must check the regime and interest rate they are paying to the lender. If it is much higher than the lender’s EBR, then this is the correct time for you to convert to the EBR regime by paying a nominal fee.
#2 Shift Your Loan To A Lower Interest Rate: If the interest rate with your lender is much higher compared to other lenders after the hike in interest rate, then you have to consider shifting your loan to a lender who offers lower interest rates. Most housing finance companies other than top ones like HDFC and LICHFL usually charge a higher interest rate compared to top banks. So, if you are eligible for a loan from a top bank, then you can shift your loan to one. Especially, if the difference in interest rate is 0.5% or more, then this is the correct time to transfer the loan.
#3 Negotiate A Lower Rate With Improved Credit Score: Initially, when the credit score is low, borrowers may not get a home loan at lower interest rates. After improving the credit score, income, job, etc., borrowers can go in for a home loan transfer to get lower interest rates.
#4 Increase The Home Loan Tenure: If you are not able to cope up with making your EMI payments after a hike in interest rates, then you can request your lender to increase your loan tenure. Suppose you are 40 years old and you have taken a loan for 15 years, then you can get the tenure increased to 20 years.
#5 Home saver option: If you want to save on the interest rate, you can open an overdraft savings or current account. The borrower can deposit his surpluses and withdraw from them as per his financial requirements. In these loans, you have to pay the interest as long as you are able to pay the principal only. The interest is computed after deducting the money deposited in your overdraft account from the outstanding loan amount.
#6 You Can Prepay Your Loan: You can prepay your loan if tenure extension is not possible. Since most home loans are taken with floating interest rates, there will be no prepayment penalties.
#7 You can take a hybrid loan: You can take a home loan which allows you to pay a fixed rate of interest in the initial years and then switches over to a floating rate of interest. In this way, the hike in interest rate will not affect your tenure or your EMI.
Conclusion
Interest rates on home loans may be subject to frequent changes. But, borrowers can tackle the hikes by using the various options listed above. They can opt between extending the home loan tenure or paying higher EMIs based on their financial situation.
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