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What Should Home Loan Borrowers Do to Prepare for Future Interest Rate Hikes?
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Disclaimer: This Article is for information purpose only. The views expressed in this Article do not necessarily constitute the views of Kotak Mahindra Bank Ltd. (“Bank”) or its employees. Bank make no warranty of any kind with respect to the completeness or accuracy of the material and articles contained in this Newsletter. The information contained in this Article is sourced from empaneled external experts for the benefit of the customers and it does not constitute legal advice from Kotak. Kotak, its directors, employees and the contributors shall not be responsible or liable for any damage or loss resulting from or arising due to reliance on or use of any information contained herein.
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During increased inflation in the country, the RBI hikes the repo rate to control and bring down the flow of money. In case of increased repo rate, various lenders and banks shall reflect this hike in their lending rates, affecting home loan borrowers. Even if it doesn’t occur today, there is a possibility of an increased home loan interest rate in the near future. So, to protect your savings from such uncertain changes, how do you prepare for higher rates? Here are three ways that can help you lower down the interest burden
Home loan prepayment is an option that can help you make big savings on the borrowed money. Paying a lump sum amount towards your loan reduces the principal amount. Thus, with a partial prepayment, you can decrease the tenure of your home loan, which will affect the interest payable. You can dedicate your year-long savings, or any bonus received towards the loan at the start of the tenure. This is because the interest component of an EMI is higher in the beginning of a loan when compared to the principal repayment sum. In the case of home loan interest rate hikes in the future, the prepayment option shall secure you as it will reduce the tenure and bring down the interest burden.
However, make sure you are aware about the applicable charges, particularly when you avail a fixed interest rate home loan. While the Reserve Bank of India has dis-allowed lenderss from levying pre-payment charges on floating interest rate loans, they are free to charge a fee for a fixed interest rate loan.
When there is a hike in the home loan interest rate, the lender will not increase the EMI and instead shall extend the tenure. But the latter shall lead to a higher interest outgo because the longer the loan tenure, the more time it will take to repay the outstanding balance, hence attracting more interest. To safeguard your savings and pay less interest on the principal amount, you should talk to your lender about increasing your loan EMI. In the event of interest rate hikes, higher loan EMI can help greatly in repaying your home loan in the long-term.
Choosing a home loan balance transfer is another option to curb the rise in interest rates. If the RBI increases the repo rates, it isn’t necessary for all lenders to hike the rates. Hence, you can consider a lender that allows you to switch your home loan at a lower interest rate. Something that you must keep in mind is that, balance transfer is allowed after regular repayment of your loan for at least 12 months. . However, even a slight decrease in home loan interest rates can help you save on a good amount of money. You can consider the Balance Transfer facility that Kotak Mahindra Bank offers, using which you can switch to a home loan with one of the lowest interest rate in the country.
As the changes in repo rate and the lending rate of banks are beyond your control, you can take these small steps to deal with the future possibility of interest rates going up. You can even move to a home loan with a lower interest rate using the balance transfer facility, without much hassle. Use the home loan eligibility calculator to check your eligibility and avail a lower home loan rate with Kotak Mahindra Bank, today to make better savings.
Disclaimer: This Article is for information purpose only. The views expressed in this Article do not necessarily constitute the views of Kotak Mahindra Bank Ltd. (“Bank”) or its employees. Bank make no warranty of any kind with respect to the completeness or accuracy of the material and articles contained in this Newsletter. The information contained in this Article is sourced from empaneled external experts for the benefit of the customers and it does not constitute legal advice from Kotak. Kotak, its directors, employees and the contributors shall not be responsible or liable for any damage or loss resulting from or arising due to reliance on or use of any information contained herein.
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