Borrowers have been waiting for too long for reduction in home loan interest rates. The Reserve Bank of India (RBI) has maintained the repo rate at its current level since February 2023, leading to heightened expectations for potential reductions , particularly following the recent 50-basis point cut by the US Federal Reserve.
Nevertheless, given the prevailing inflationary pressures in India, it is improbable that the RBI will implement any rate cuts in the near term, not in the festive quarter at least. In light of this situation, what should borrowers do at this juncture?
Opt for a Fixed-Rate Home Loan
In a high-interest environment, choosing a fixed rate home loan can be a wise decision. Fixed rate loans provide a stable interest rate for the entire loan tenure, offering predictability in monthly payments and shielding you from future rate hikes. While these loans may start with a slightly higher rate compared to floating rate options, they provide peace of mind by ensuring that your EMIs remain constant.
Choose a Shorter Loan Tenure
Adhil Shetty, CEO of Bankbazaar.com says, “Shorter tenures mean higher monthly EMIs, but they significantly reduce the overall interest cost, making the loan more economical in the long run. This strategy is ideal for those who can afford higher EMIs and want to pay off their home loan faster.”
Negotiate for Better Terms
If you have a good relationship with your bank, don’t hesitate to negotiate for more favourable loan terms. This could include a lower interest rate, more flexible repayment options, or reduced fees. Lenders are often willing to offer better terms to customers with a strong repayment history, so it’s worth discussing these options.
Down Payment
A smart way to manage high interest rates is by making a larger down payment when purchasing a home. Contributing more upfront reduces the total loan amount required, which in turn lowers your monthly EMIs and the overall interest paid over the loan tenure. This approach, though requiring significant savings, can substantially ease long-term financial obligations.
Collateral Loans
Using assets like fixed deposits, gold, or mutual funds as collateral can help finance your home purchase or make a larger down payment. This reduces the amount you need to borrow, which can lower your monthly EMIs and the total interest burden over time.
Make Prepayments
Making prepayments, either by paying more than your regular EMI or making lump sum payments towards the principal amount, can significantly reduce your overall interest cost. Setting aside funds for prepayments can help you take advantage of future rate cuts, enabling you to lower your debt more quickly.
Balance Transfer
A home loan balance transfer involves moving your existing loan to another lender offering a lower interest rate or more favourable terms. This can help reduce your monthly EMIs or shorten your loan tenure, ultimately saving on interest costs. However, be sure to consider any associated fees, such as processing charges, to ensure the savings outweigh the expenses.
By following these tips, borrowers can manage their home loans effectively even when interest rates are high. It is important to check your financial situation and select the options that best align with your needs and goals.
Mr. Mayank Jain is one of the key founding members of the capital market team of Savills India & has played a key role in establishing the capital market practice in North India for Savills. He has lead the key accounts initiative to deepen a relationship with the top sixty key clients across India & has independently led a team to carry an extensive client engagement program to develop a base of more than 100 active clients in North India within the first 12 months.
