Before buying a home loan, one needs to understand the importance of this loan’s interest rates and EMIs. Many borrowers prefer going for floating interest rates when it comes to home loans. This is because if there is a fall in the interest rate of the home loan, the borrowers can get a revision in one year, as most banks offer home loans with the 1-year MCLR rate.
Now, most repayment tenures for home loans last up to 20 years. This means that even a slight rise or fall in the home loan interest rate can have a significant impact on the overall cost of house ownership.
Banks have more capital to lend
Even after Reserve Bank of India (RBI) decided not to cut down the repo rate in its latest monetary policy review, home loan interest rates could still fall. This is because RBI has reduced the amount that banks have to keep as security on home loans. This means that banks are in a better position to lend more capital, ultimately leading to lower home loan interest rates.
Expert’s opinion on home loan EMIs
It is always advisable for borrowers to take into account both their current as well as future cash flows. Many banks are flexible when it comes to the repayment period and let borrowers pay lower monthly instalments in the first year. It is also important to keep in mind emergencies as huge EMIs could take up a large portion of your income, ultimately resulting in financial difficulties. Another alternative is to go for aggressive EMI payments if there is adequate liquidity or when the cost of borrowing has increased.
What affects in home loan EMIs?
One of the most important factors that can affect the housing loan monthly instalments is the fluctuation in the interest rate. This mostly applies to floating interest rates, as they fluctuate according to the changes in the market. Now, these fluctuations can have both positive and negative effects on the loan EMIs. Whenever RBI regulates a change in the bank interest rates, it will invariably reflect on the monthly instalments of your loan. Now, even a slight dip in the floating rates could bring down your monthly instalments significantly. This is why borrowers with slightly more flexible incomes are suggested to apply for home loan plans with floating interest rates as this could save a lot of their money when rates go down.
Lastly, it is always considered a good practice for borrowers to use a home loan EMI calculator. This is so that they can get an accurate estimate of the monthly instalments of their loans. To avoid any financial burden, make sure that the home loan EMI is not exceeding 40% of your monthly income.