Five ways to deal with a hike in home loan interest

by Litty Jose Finance Analyst

Home loan interest rates are set to go up in the coming times. In some cases, your banks may already have increased your rates. This hike in loan prices is attributed to inflation, rise in crude oil prices and the drop in the value of the Indian rupee.

The rise in home loan interest rates will affect not only new home owners, but also those with existing home loans. If your bank does not increase your housing loan interest rate, they can still increase the tenure on your loan, which means you’ll be paying more in interest.

If you’re planning to get a home loan in the near future or you already have here are some ways you can deal with the rise in home loan interest rates.

1. Calculate your income to debt ratio: Before getting housing loans you should always compare your income to debt ratio. This means calculating how much you can save after paying your monthly EMIs on your loan. This will help you ensure that you have something to fall back on if there is any fluctuation in the market and you can afford your home loan interest even if it goes up during the tenure of your loan.

2. Prepay your home loan if you can: Banks usually won’t increase interest rates for existing home loan customers, instead they will extend the tenure of your housing loans, which means you will have to pay more anyway. If it is possible and your income permits it, increase your EMIs, this will help you prepay your home loan and save more money.

3. Use your extra income to pay your loan: Saving is important, but when you have housing loans to pay off, it is better to pay it, rather than save. If you receive any extra income in form of inheritance, bonuses or even a lottery, use that money prepay your loan, so you don’t have to worry about home loan interest increasing.

4. Opt for fixed rates: Always opt for fixed home loan interest rather than floating rates. This way you have to pay the same EMI every month and don’t have to worry about paying more or less every month.

5. Pay more whenever you can: If you happen to have more disposable income in a certain month, use it to make lump sum payments on your housing loans. This will help prepay your home loan.