Additional Burden for Home Buyers as EMI’s Shoot up

The recent key interest rate hike marks the end of the all-time low-interest regime. For individuals holding loans worth Rs 1 crore and more, the EMIs have increased by Rs 12,000 with two rounds of hikes in policy rates within a month. The sharp hike in home loan rates has started worrying the existing home buyers as their savings are severely impacted by increasing inflation.

Currently, the home loan rates are approximately 150 bps less than the prevailing home loan rates in 2019. If these levels are renewed, it will increase 11.73% in the EMI load for a homebuyer, and the affordability will decrease by 3.38%.

The Reserve Bank of India (RBI) increased the repo rate by 90 bps in two tranches. One bps equals 0.01%, which translates to an increase of 0.9% in two times. RBI is likely to continue increasing the policy rate to lessen the gap with the consumer inflation index and bring down the scope of negative real interest rate within the economy, which currently stands at -1.8%.

Mostly, lenders opt for a longer home loan tenure and keep the EMI stagnant. Nevertheless, opting for a higher EMI versus an increased tenure is recommended since the total interest outgo increases when the loan tenure is hiked.

For any clarifications/feedback on the topic, please contact the writer at bhavana.pn@cleartax.in

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