How to Deal with Home Loan Interest Rate Hikes?

A home loan is a long-term financial commitment, and thus, any fluctuation in the interest rate can make timely loan repayment difficult. For banks, the interest rate is directly linked to the Marginal Cost of Funds-Based Lending Rate (MCLR), which is regulated by Reserve Bank of India (RBI).Thus, repo rate hikes by RBI can lead to banks raising their MCLR, thereby, increasing home loan interest rates. However, there are certain measures that you can take to deal with interest rate hikes efficiently. Some of them are mentioned below:

  1. Prepay your home loan

Home loan interest rate hikes can increase your overall cost of borrowing significantly. So, to mitigate the effect of interest rate hike, you must consider prepaying your home loan. You can use your surplus income, savings, investments, etc., to make part-prepayment of your home loan. This will not only reduce your outstanding loan amount but also decrease the loan tenure, thereby, helping you close your debt sooner. However, before you opt for prepayment, ensure to make a note of the prepayment charges levied by the lender.

  1. Increase your home loan EMI

An interest rate hike on a home loan would mean longer tenure and more interest outgo. This is because, most lenders usually extend the repayment tenure while keeping the EMI same. However, to avoid this, you must contact your lender and ask them to increase your home loan EMI rather than extending the loan tenure. By doing so, you would be saving a large sum on the interest pay-out. Additonally, you must ensure that your revised EMI is within your financial capacity, otherwise, you may end up defaulting on your home loan.

  1. Home loan balance transfer

Not every lender increases the home loan interest rate with the hike in RBI’s repo rate. Therefore, you can consider refinancing your home loan with a different lender that offers a lower interest rate. However, if you have already serviced a major portion of your loan tenure and are close to thefinal repayment date, opting for a home loan balance transfer wouldn’t be a feasible option.

Also, in case you choose to refinance your home loan, you must research the costs involved in the transfer and calculate the total savings you would make in the long run.

  1. Prioritize your debt

Apart from home loan, if you have other debts such as a personal loan, credit card bill, business loan, etc., you must prioritize your repayment carefully. It would be best to close the high-interest loans first and then take care of the remaining debts.

These tips can help you deal with the interest rate hike efficiently, and help you bring down your overall cost of borrowing. Lastly, since a home loan is a secured loan, defaulting on it can cost you your property. Therefore, make sure that your EMIs are always affordable. Get an estimate of your home loan EMI, using a home loan EMI calculator to help you consider your monthly budget and enable timely loan repayment.

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