Vikas Wadhawan
After touching the lows of 8.3 percent a year during FY2017-18, home loan interest rates have started to move upwards. Recently, most banks and housing finance corporations (HFCs) revised their rates to 8.5-8.6 percent in the backdrop of increased marginal cost of lending rate (MCLR), which is the minimum rate at which banks can lend.
This upward revision of 20-30 basis points has pushed the EMI per lakh by Rs 20 per month for a 20-year loan tenure; that means, on an average Rs 25 lakh loan, a homebuyer has to shell out Rs 500 extra now. While this may appear to be a marginal increase in the interest cost, the overall trend suggests that home loan interest rates have bottomed out and are now set for an upward move in the coming quarters.
The hike in MCLR is not the only indicator. The 10-year yield on government securities (G-Sec) has gone up from 6.40 percent in 2017 to 7.8 percent presently, which is a strong sign that upward revision in key lending rates is on the cards. There are several banks and HFCs that invest in G-Secs and when they are bound to pay more yield, they are also eligible to enhance their revenues by increasing the cost of lending.
Well, economics apart, the average homebuyer needs to be prepared for an expected change in policy stance. The home loan borrowers have several ways to cope up with the situation. Firstly, they can consider increasing the overall home loan tenure. Today, several banks and HFCs are offering home loan tenures of 25-30 years as against the general 20-year period. One can speak with the bank on this matter and get an enhanced payback period. This move can help in managing an increased EMI burden.
However, one should also factor in that this move will increase the overall cost of home loan. There is another way out — making a pre-payment. If you have saved funds and invested in FDs or any other G-Sec or bonds, it is better that you use them in prepaying some home loan. This way, your overall interest cost will be under control and your EMI cost will also be more or less same, or even less than earlier.
If that does not look possible, then the third way is to increase the EMI amount, in the scenario you have a stable income enabling you to pay up an extra amount in the form of EMIs. This is yet another way which is financially prudent and will favour you in the long run, though in the short term, you would have to bear the pinch due to a higher outflow of funds every month.
The fourth way is to switch to a home loan provider who is offering you better terms. Due to a prolonged slowdown in the real estate market, banks and HFCs have become increasingly competitive to get home loan clients. They may offer you incentives such as EMI holiday period of up to 2-3 months, gift vouchers etc. along with better rates.
These are some of the ways through which you can manage your home loan costs in the coming days and prepare for the future.
(The writer is Group Chief Financial Officer of Housing.com, PropTiger.com and Makaan.com)
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