5 Ways to Tackle the High Home Loan Rates in India
Posted by robbinkendy06 on July 30th, 2016
There is a constant speculation in the market on whether the interest rates will climb further, remain stagnant or decrease over a period of time. But, the harsh reality is that the recent rise in home loan rates has driven the budget of almost 3 million households, out of gear. The EMI's have risen significantly and with a monthly salary unable to keep pace with the growing expenditure, people are stretching too far to make the ends meet. If you also a part of the populace left gasping with this sudden unexpected rise in home loan interest rates, here are a few tips to lower its impact and successfully manage your home loan in these testing times.
1. Shifting from a floating to fixed interest rate on your home loan
Those who are bothered, whether the currently prevailing floating rates on home loans, will exceed the fixed rate (currently around 13%-14%) can try to convert their floating rate home loan into a fixed rate one. Though the fixed rate are rarely 'truly fixed' but the banks generally lock them for a fixed period of around 3 years. Before taking any such measure it will be beneficial to get all the facts about the fixed rates and their period. Another thing that warrants attention in this case is the fees bank charge to convert from floating to fixed and vice versa. For example the ICICI bank charges 1.75% on the outstanding principal for changing from fixed to floating rates of interest. All such factors should be carefully considered before taking any such step.
2. Switch to another lender which offers better rates
In this fast increasing interest rates regime, there are banks and housing finance companies (HFC's) which, are absorbing the shock and keeping the interest rate burden to themselves. It is judicious to compare the currently prevailing interest rates of all such banks and HFC's. If you find one such entity, which offers a cheaper interest rate of 0.50% or more and offers balance transfers, consider it seriously. The thing to watch out is the Home Loan Balance Transfer fees, the EMI's and loan tenure. Make sure that the benefits of transferring balances are not outweighed by the balance transfer fees and harsher terms.
3. Try to get the loan tenure increased
If your banks allow an increase in your loan tenure, this will significantly decrease your monthly home loan EMI burden. One major thing a bank keeps in mind while deciding for an increase in loan tenure is the age of applicant. If you are not nearing retirement and have a good employment track record chances are great the banks will relent. The upper age limit is 60 years for salaried and 65 years for self-employed with most of the banks.
4. Try to pre-pay a part of your home loan
A good option to decrease the EMI burden is to prepay a part of your home loan. Part prepayment is allowed by major banks subject to their terms. If you have a fixed deposit, or any other asset which can be used to bring down your total home loan amount, try to use it. Some people think that taking another loan or overdraft on their existing deposits and using that money to pre-pay a part of home loan is a good option, but it is only another loan. Though, it will make your decrease your EMI's on the home loan but will add another repayment burden for the new loan.
5. Budget out your unwanted expenditures
Budgeting is a tool which is much recommended but rarely used. We go on spending money without sparing a thought about its usefulness. If you keep a track of everyday expenditure and weed out the unnecessary ones, you have some spare valuable cash! This will be a very handy resource to fund that hike in EMI's or at least a part of it. Though, budgeting will require a little self-discipline, but the amount of help it can bring to strained financial situation can never be understated.
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