In the past few months, homebuyers have been the worst hit as home loan interest rates have gone up due to constant repo rate hikes in the past. The pain of having to pay more than anticipated has left many home loan borrowers feeling embittered. “Buyer’s remorse” is gradually becoming a trend as more borrowers are worried about having to choose between paying higher equated monthly instalments (EMIs) and extended loan tenure to repay their loans.
Moreover, the Reserve Bank of India (RBI) is more likely to continue with its rate hike spree to control the rising inflation rate, thus, spelling a greater disaster for those who have sought loans in the last few months.
There is another downside to inflation, which is the increased inability to manage daily expenses owing to the load of higher home loan EMIs. Most borrowers are looking for solutions that can help them repay their loans in time or a way that can mitigate the effect of the sharp rise in interest rates. To start with, they can look for lending companies offering easy EMI home loan options.
Ratan Chaudhary, Head of Home Loans, PaisaBazaar.com said, “Some lenders offer a moratorium on their regular home loan schemes to reduce the repayment burden of borrowers during the initial years. Those wishing to purchase better or larger home properties but are unable to do so due to the lack of repayment capacity can also avail flexi or interest-free home loan schemes. However, they should opt for flexi or interest-free home loan schemes if they have near certainty regarding their income increase in the near future.”
“Note that non-payment of the principal component during the initial years of these schemes would lead borrowers to incur higher interest costs than home loan schemes with regular EMIs. Thus, borrowers opting for these schemes should try to repay their full EMIs as soon as their income and cash flows permit them to do so. This would reduce their overall interest cost to some extent. Under the home loan overdraft facility offered by banks and housing finance companies (HFCs), the lender opens an overdraft account in the form of a current or savings account. The home loan borrower is allowed to park his surpluses and withdraw from them based on his cash flow requirements," Chaudhary added.
Further he added, "The interest cost of the home loan borrower is calculated after deducting the amount deposited in the savings/current account from the outstanding home loan amount. This allows home loan borrowers to derive the benefit of making prepayments without sacrificing their liquidity. Home loan borrowers opting for the home loan overdraft facility can even park their emergency funds in the linked overdraft accounts. This would help in saving their interest cost without compromising their liquidity.”
However, overdraft or flexi home loan interest rates are frequently higher than those on the corresponding floating-rate term loans. The idea behind availing of this benefit is easy repayment on the loan by seeking relaxation on repayment of the principal or interest amount, thus, allowing more cash in hand in the hands of the borrowers.
There is another way home loan borrowers can manage their loan repayment schedules. Most commonly referred to as a home loan overdraft option, borrowers finding it difficult to repay high loan EMIs can check for options such as interest-free home loans or flexi home loans till they have sought possession of the new property against which the loan was sought.
Atul Monga, CEO & Co-Founder, Basic Home Loan, “Repaying a loan is a long-term commitment for homebuyers. But when a buyer is unable to repay home loan instalments on time, he ends up paying additional charges. One way to avoid this is to repay the loan using the overdraft facility. Once you take on this scheme, you can directly transfer the saving accounts funds to your home loan account. It is essentially a credit option wherein you can deposit a lump sum amount over and above the EMI amount into the loan account. Taking a home loan overdraft has many advantages. Adding this surplus money to the account will be considered a pre-payment towards the loan. It reduces your principal amount and the interest on the outstanding loan amount, while your EMI remains the same. The best part is that the loan can be repaid before the stipulated tenure and is beneficial for those looking to repay their loan in a few years.”
Though the easy EMI options may seem beneficial in the beginning, foregoing principal payment at the beginning of the year may result in added interest burden down the line as you have to repay the amount sooner or later. An easy loan repayment facility translates to a greater interest burden during the remaining loan tenure.
With easy home loan options only shifting the burden to a later period, it makes sense to opt for a different alternative like home loan prepayment that may seem difficult but will ensure less interest outgo in the long run. To start with, borrowers must cut down on the extra expenses that they can do without.
Also, borrowers staying on rent may either shift to their newly bought property or shift to a cheaper location. Looking for added, passive income sources through freelancing gigs will ensure more cash in hand, thus, easing the loan repayment facility by paying out more in EMIs regularly.
Another way is through seeking loan consolidation wherein all running debts or loans are consolidated and shifted to another lender. A new loan equivalent to the consolidated loan amount is sought from a lender charging lower interest rates, thus, doing away with the earlier high-interest liability. The extended loan tenure should be the last option as there is tremendous interest outgo involved in this.