As a result, the borrower who took a loan in January would have seen EMI go up to Rs 46,039 in July and to Rs 50,211 in October. That is, if they decided to keep their tenor unchanged.
Banks usually prefer to increase the tenor rather than the EMI. However, with rates having increased by over 200 basis points this year, tenor increases may no longer be possible. The tenor of a 15-year loan would have to rise by as much as 74 months, or over six years, to pass through the increase in rates over the past eight months, according to Bank Bazaar.
With the latest increase of 35 basis points on Wednesday, home loans are likely to rise within the next couple of months. In the example cited, a reset in January would take the individual’s EMI to Rs 51,197. That’s a 14% increase in EMI from the start of the year and an over 22.5% increase in the interest burden over the remainder of the loan repayment period.
There is a silver lining. RBI Governor Shaktikanta Das said on Wednesday that the worst of inflation is now behind us. Although the governor stopped short of saying that terminal rates have been reached, economists do not anticipate that interest rates will rise significantly from this point.
A pause by the central bank is, therefore, on the cards. But for how long is anybody’s guess.
Borrowers are advised to prepay their home loans wherever possible to reduce their interest burden, according to Adhil Shetty, chief executive officer of Bank Bazaar.