RBI has increased the repo rate for the fifth time in a row, due to which the home loan is going to be expensive.
How much an increase in the repo rate will affect the home loan installment depends on the remaining tenure. If someone has taken a loan of Rs 30 lakh in March this year for a period of 20 years at 7 per cent interest, then his installment will now be 9.25 per cent. That is, his installment will increase from Rs 23,258 to Rs 27,387. That is, his installment will increase by 17.75 percent. If the tenure is 30 years, then the EMI will increase by about 23%. Loans with short tenure will be less affected. For example, if the tenure is 10 years, then the EMI will increase by only 9.96%.
Should the tenure be increased or the installment
Banks decide the tenure of the home loan according to the retirement age of the borrower. If it is not possible to extend the tenure, then the borrower has two options. They can increase the installment or pay a lump sum amount to reduce the principal amount. Experts say that if you are able to pay the increased installment, then you should avoid extending the tenure. You can prepay a part of your loan if you have the funds available with you.
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If you pay 5% of the loan balance each year, you’ll pay off the 20-year loan in 12 years. If you pay an additional installment every year, you will pay it in 17 years. Similarly, if you increase the installment by 5% every year, you will repay the loan in less than 13 years. By increasing the loan installment by 10% annually, your loan will be repaid in 10 years.
