Home loan interest rates seem to have stagnated since the Reserve Bank of India (RBI) last announced a repo rate hike in February 2023. Interested borrowers now seemed to have regained their confidence since banks constantly advanced their interest rates in sync with the rate hikes updated by the RBI.
However, though everything seemed to have mellowed down on the surface, is all really well with the home loan sector? Many borrowers who had sought home loans in the past rue over rising interest rates as they find it difficult to repay the amount they had borrowed to buy their dream home.
Still, others have resorted to moonlighting to ensure an added income source to be able to repay their loans early. Looking at the same in hindsight, newly interested borrowers have a lot to learn from these unforeseen and continued rate hikes. Also, the loan availability amount is going down considering how very few people are able to afford a large home loan and then repay the same.
Though interest rates continue to be high, those looking for a fresh home loan or consolidating their earlier home loan debt with a fresh loan must focus on certain essential learnings from the past.
Sporadic interest cycles are common in the long run
You do not just take a home loan and assume to repay it within the next year or two. These loan amounts are huge and so is the loan tenure, thus, explaining how you must embrace the idea of long-term debt. Interest rates go up and down in cycles, which means that you are likely to witness a lot many such ups and downs in the loan interest rates during the loan tenure. Considering how global economies do not remain stagnant and fluctuate with time, home loan borrowers must be willing to experience numerous interest rate fluctuations and their reversals during the loan tenure.
There may be more rate hikes
Rate hikes may continue in the future too considering how many global banks are fallings and geopolitical tensions have only given an impetus to the inflation rate. Existing borrowers wish that they get rid of this phase soon while the new borrowers hope that the banks would roll back the hikes in the near future.
However, this may be mere wishful thinking as many personal financial analysts warn us of the possibility of more rate hikes in the coming months. Global inflation stemming from sudden events and unwarranted developments on the economic front highlight how repaying a home loan may eat into a major chunk of your savings in the coming months or years.
It’s futile waiting
If you are trying to time the loan interest rates and hoping to apply for them only when they strike down, it might take at least two or more decades for the interest rates to subside. Just like good things do not last forever, you may wait for the current tension-ridden phase to be over.
However, this also means waiting for a few more years before you apply for the loan or taking the loan now and getting rid of it soon by prepaying it with income from passive sources. Considering how one cannot predict loan interest rates, there is no point for home loan borrowers to wait for lower interest rates before applying for the loan amount.
Choose to prepay
Remember the adage, “There is no point in crying over spilt milk”? This holds true for borrowers too who crib and cry once the interest rates go up. Interest rates go up and down in cycles, which means that it is common to witness at least one or more hikes in interest rates while repaying the loan. To escape the burden of high-interest rates and consequently increased EMIs, you must choose to prepay your loan, which means paying more than what has been decided or stipulated by your lender.
At the outset, it may not be easy though it helps if you consider this factor as soon as you start repaying the loan. You can assort your finances to ensure continued and gradual loan prepayments so as to expedite your loan repayment. One way out is to ensure an additional income source that you may divert towards home loan prepayment, thus, not only helping you to get rid of the loan quickly but also shielding you against sudden interest rate hikes.
Refrain from a long loan tenure
Heightened interest rates have caused many borrowers to opt for prolonged loan tenures. However, this has resulted in more money being expended through interest payments. Some lenders offer an increased loan tenure. Vulnerable borrowers do not realize the futility of choosing this option and the disadvantage of a larger payout in the long run. Also, extending the loan is not possible beyond a certain age, especially, for senior citizens looking for a home loan but unable to decide on the loan tenure of their choice. This may translate to higher equated monthly instalments (EMIs), thus, making it impossible for many to then repay their loans.
Many people complain about their inability to take loans at such high interest rates, more so if they have poor credit scores. However, the trick is not only to avail of the much-needed loan amount but also to ensure that it is repaid within or before the stipulated time limit.