A home loan is basically a long-term financial commitment, and interest rate fluctuations make the repayment tricky. Repo rate hikes by the Reserve Bank of India can lead to banks raising their MCLR, thus increasing home loan interest rates.

Increase in rates by the RBI leads to the increased cost of loans. Every person’s financial portfolio is different, and thus, interest rate hikes have varying impacts on everyone. It is imperative to analyze and understand your financial portfolio and reorganize it to tackle any debt burden caused by rate hikes.

  1. Prioritize your debt
  2. Along with a huge home loan, you may have multiple debts with higher interest rates like a credit card bill, personal loans. Prioritize your repayment by paying off the loans with high-interest rates first.

  3. Manage your savings and investments
  4. create a savings corpus by investing in suitable options to pay off your loan early. You can invest in short-term liquid options like debt mutual funds, recurring deposits, or fixed deposits. Invest a small amount monthly in these options, and once it has built up over time, use it to pay off a large section of the loan.

  5. Re-design your home loan
    1. Focus on the EMI
    2. As the interest rates go up; most lenders increase the tenure and not the EMI. Although it tackles the rate hike without increasing your monthly outflow, it increases the cost of the loan as higher tenure means higher interest payment. If possible, increase the EMI and pay off the loan in the same tenure with a lower interest payment.

    3. Pre-payment of loan
    4. Paying off a part of your loan earlier not only decreases the tenure of the loan making you debt-frese earlier, but it also ensures that you save a considerable amount of money that would have gone towards interest payment. Thus, you can mitigate the hike in interest rate by part payment of your home loan and decrease the overall cost of the loan.

    5. Change your lender
    6. It is advisable to change your lender only if the difference in the interest rate offered is more than 50 basis points. Not every bank increases the interest rates with the hike in RBI’s rates. A home Loan Balance transfer can be initiated only after payment of 18 EMIs to the current lender. Research and balance out the costs involved in the transfer and the long-term benefits and make the change.

Learn more about your home loan eligibility here.

DISCLAIMER

The information contained herein is generic in nature and is meant for educational purposes only. Nothing here is to be construed as an investment or financial or taxation advice nor to be considered as an invitation or solicitation or advertisement for any financial product. Readers are advised to exercise discretion and should seek independent professional advice prior to making any investment decision in relation to any financial product. Aditya Birla Capital Group is not liable for any decision arising out of the use of this information.



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