Table of Content
- RBI lending rate hike — How to reduce interest burden while repaying home loan?
- Interest Rates And Fees If You Borrow On Amounts You Prepaid
- Rs 1,00,000 partial prepayment at the end of each year
- No further extension of home loan tenure for many if RBI hikes repo rate again
- 5% annual increment in EMI
- What does prepayment of loan mean? How can it help you save interest and reduce the loan tenure
During initial loan period, a large portion of each payment is devoted to interest. With passage of time, larger portions pay down the principal. The payment schedule also shows the intermediate outstanding balance for each year which will be carried over to the next year.
The home loan interest offered by LICHFL depends on the purpose for which the housing loan is availed. The current LIC home loan interest rate starts from 8.35\%, which is one of the best home loan rates offered in India. To know the latest LIC Housing Finance home loan interest rates table, click here.
RBI lending rate hike — How to reduce interest burden while repaying home loan?
You have to factor in the tax benefit that you get on your home loan interest payment and principal repayment. If the net benefit is higher in prepayment you should go for prepayment. If after various tenure extensions, your last EMI payment has reached close to this limit, you will have to brace for the EMI increase whenever the lender raises the interest rate. If you opt for a higher EMI, you can pay off the loan within a shorter duration. Thus, you will be able to free yourself from the burden of EMI payment at the earliest.
Sections of the Income Tax Act including Section 80C, allow tax benefits on housing loans. The 80C benefits apply only to the principal amount of a loan, and you can get an exemption of up to Rs. 1.5 Lakhs every financial year. All information including news articles and blogs published on this website are strictly for general information purpose only. BankBazaar does not provide any warranty about the authenticity and accuracy of such information.
Interest Rates And Fees If You Borrow On Amounts You Prepaid
As we saw, one can derive substantial benefits from prepaying their home loan. We have discussed four home loan prepayment options, and you can choose one of these depending on your financial situation. You could even customise these prepayment options to suit your requirement. The idea is to try and pay off your home loan as soon as possible, as this can save you a considerable amount.
And the loan reduction is lesser by around $10,000 at the end of three years as more of what one pays go towards interest. Some people may not be aware, besides the nominal interest rate which determines this ratio between interest costs and principal reduction, another variable is the tenure. Many would simply focus on getting the best interest rate out there as opposed to what his repricing bank offers.
Rs 1,00,000 partial prepayment at the end of each year
Conventional loans, bank cards, and credit line facilities have maximum lending amounts. Step-up loans- the EMI is low initially and increases as years roll by . The step-up option is convenient for borrowers who are at the beginning of their careers. Most people get an annual increment in their salary during their performance appraisal. They can use the additional monthly cash flow to increase their home loan EMI.
With a lower EMI, even though you will pay more in absolute costs, there will be a much greater peace of mind. While it may seem that way, we must look at the affordability aspects too. What if you cannot afford an EMI of Rs 33,000, but can manage an EMI of 22,000? In that case, a longer tenure is better because you won’t at least struggle to repay the loan. Ajay Sharma, aged 44 years, is a synthetic garment trader in Surat and aspires to buy a 3 BHK house worth Rs. 74 lakh. Mr. Sharma earns Rs. 80,000 on an average per month with his seasonal business.
No further extension of home loan tenure for many if RBI hikes repo rate again
You can calculate EMI for home loan, car loan, personal loan, education loan or any other fully amortizing loan using this calculator. The second reason is that longer Home Loan Tenure may interfere with your financial goals in life. As a thumb rule, you should plan Home Loan in such a way that you will close it before your kids join college. The major expenses start from this point and will last till the marriage of a child.
There will added burden of an increased monthly commitment which may be difficult for the borrower to sustain for long periods. Additionally the total interest paid will increase in compounded manner as a new higher interest rate will be applicable for longer term which will multiply the total interest many fold. The loan will have to be repaid for a longer period which means that the interest will have to be borne for longer duration and the total interest paid at the end of the tenure will be high. In such a case it makes more sense to increase your EMI,” said Chandak. In general, a loan extension will allow you to skip a certain number of immediate payments—which, while not set in stone, is typically just one—and add them onto the back of the loan. In most cases, the maturity date of the loan is then extended by the number of postponed payments.
To fight rising inflation, the central bank of India has hiked the repo rate by 190 basis points during the current financial year. Most of the lenders have already passed on a higher rate to borrowers. Whenever there is a hike in interest on floating rate home loans, lenders usually prefer to extend the loan tenure rather than increasing the EMI amount.
Despite the odds, we’re still hopeful as there is significant pent-up demand from a very large population base and first-time home buyers. Real estate is definitely among the best instruments to invest in and looking ahead, and the Sterling Developers chief believes that markets will see sustained growth over the next few years. Compared to the fourth set of tenures (16-20 years), there is a jump of 38.1% as in the fifth and the last set of tenures (21-25 years) % of the loan amount is paid off. From the data, it can be understood that, by the end of 15 years (the third set of five years which is years), around 36.4% of the loan is paid off -- which is a rise of 17.2% from the second set.
For instance, let us say an individual aged 32 years has opted for a home loan of Rs 30 lakh for a tenure of 20 years at 6.95 per cent interest rate in April 2022. With back-to-back rate hikes by the RBI in the last seven months, his home loan interest rate has currently increased to 8.85 per cent. Now, he has to shell out around Rs 26,000 EMI for his current home loan outstanding. As explained earlier, to cushion the impact of the increasing interest rate of home loans, banks usually keep the EMI amount unchanged and increase the repayment period of the loan. However, there is a limit on extending the tenure, said experts.
These people can afford to increase their home loan EMI at a compounded rate of 10% p.a. Let us examine how each of the above prepayment options will work, and what benefits Amit will derive by opting for them. Most lenders have linked their lending rates to the repo rate. This will help them in reducing their loan tenures and EMIs. Economies across the globe are grappling with recessionary trends. A time like this calls for people to calibrate their finances to adjust for these difficulties.
No comments:
Post a Comment