Home loan interest rates along with all other loan rates are market-linked, which further is based on RBI’s repo rate directly or indirectly. An increase in the repo rate will thus affect the housing loan rates and eventually cause a hike.
When housing loan rate increase, home loan borrowers will end up paying higher EMIs. Moreover, the overall payable interest and cost of loan will also increase.
In such situations, borrowers can opt for the following two facilities –
Part-Prepayment
Part-prepayment is a facility by which home loan borrowers can repay a lump sum amount, which is more than their EMIs. Doing so will decrease the outstanding loan balance. Hence, the chargeable interest will also increase.
By making a part-prepayment, borrowers will have two options –
- Reduce the EMIs.
- Reduce the tenor.
Reducing the EMIs will be beneficial if these become expensive. On the other hand, reducing the tenor will enable them to save more on interest.
Opting for part-prepayment will be more beneficial during the initial months of the loan tenor when the interest on EMIs is high.
Balance Transfer
With a loan transfer, borrowers can switch lenders. They can transfer their outstanding home loan balance to another lender offering lower interest rates. As such, they will be able to save on interest and reduce their EMIs.
However, the current lender might charge a balance transfer fee when providing this facility. Hence, borrowers should assess their savings before opting for it.
These were two of the most efficient methods for borrowers to deal with increased home loan rates.
