Try the bullet option to repay your home loan

By Srujani Panda, CNBC-TV18:

After major banks like ICICI, HDFC and Axis increased their home loan interest rates many home loan borrowers are in big fix. Borrowers who had taken home loans in the low interest regimes have seen their loan liability increase manifold. However, help may still be close at hand.

 Is your dream of "home sweet home" increasingly burning a hole in your pockets? Clearly so, because if you had taken a Rs 20 lakh home loan three years ago at barely 7.5% interest rate, today you may be paying as high as 12.5% on that loan, increasing your EMI burden by a whopping 33%.

But there is still some hope left. Many banks have come forward with alternative payment routes. If you are well below the retirement age, you could increase the tenure of the loan beyond the existing tenure.

Sujan Sinha, Senior VP-Retail Assets, Axis Bank, said, “The tenure change limitation that we put in is should not exceed 20% of the originally contracted tenure."

So an even better option is the bullet payment option. Banks like ICICI and Axis offer this option, by which you can pay the difference between the existing EMI and the increased EMI to cover a portion of your outstanding principal. And if you are lucky, you may not have to bear any pre-payment charge either.

Sujan Sinha added, "There are no charges on prepayment-partial or full-in mortgages."

While Axis Bank offers no prepayment charges, home loan majors like ICICI and HDFC levy up to 2% prepayment charge on the outstanding principal.

In the current scenario, banks have no option but to increase their lending rates. But by offering such options, they want to keep their defaults at manageable levels. And such options could be the only ray of hope for home the loan borrower.