Here's how 20-year home loans, EMIs for 24 leave borrowers in a fix

New Delhi, Oct 06: Buying a home is a dream shared by nearly every single Indian, and it is an important event in your life. The most frequent way to finance a home is via a home loan. So, before applying for a home loan, one must check if the instalment amount is within their repayment capacities. It will reduce the risk of defaulting on repayment.

The Reserve Bank of India (RBI) hiked the repo rate by 50 bps to 5.9% earlier this week. Soon after RBI's decision, many leading banks such as ICICI Bank and Axis Bank, as well as non-banking housing finance companies, such as HDFC Ltd and LIC Housing Finance, increased their home loan rates by almost the same proportion, effective from October 1, 2022.

As a result, all existing home loans on floating rate of interest will become more expensive. The borrowers who took long-term home loans 2-3 years ago have now seen a considerable hike in their equated monthly installments (EMIs), leading to elongation of the tenure.

For example, a 20-year home loan taken in 2019 at 6.7% will get repaid in 21 years, even though EMIs have been paid for three years.

This has been the fourth rate hike in the last five months. It should be noted that Home loan rates have risen sharply in the past five months, from 6.5% to 8.25%.

Repo Rate: It is the rate at which RBI lends money to the banks if there is an occurrence of deficit of funds. Repo rate is extensively used by monetary authorities to bring inflation under control. There is a direct relation between repo rate and RLLR rate of banks i.e. if repo rate rises then RLLR rate will also surge which will imply a rise in the home loan interest rates.