RBI has already started the rate hike cycle in 2022 due to the fear of inflation going out of hand. It has done it twice till now in less than a month. And this hiking cycle is expected to continue for some more time as is clear from the RBI governor’s public views and interviews.
What this means is that home loan borrower who has recently seen the lowest home loan rates in living memory (and got attracted to buying a house on loan due to low rates), will now have to shell out more for their EMIs as interest rates are rising.
The home loan rates had gone down to almost 6-6.5% for borrowers!
Now how much these interest rates will increase is anybody’s guess but we can analyze a few scenarios.
Let’s take the example of a Rs 50 lakh home loan to see the impact of rising interest rates on EMIs.
Increase in EMI of 30-year home loan of Rs 50 lakh
If you were to take a Rs 50 lakh home loan EMI for 30 years at an earlier low-interest rate of 6.5%, then you would have had a monthly EMI of Rs 31,603. If the interest rates now rise, then :
- At 7.0%, your monthly EMI will increase to Rs 33,265 (Increase of 5.3%)
- At 7.5%, your monthly EMI will increase to Rs 34,961 (Increase of 10.6%)
- At 8.0%, your monthly EMI will increase to Rs 36,688 (Increase of 16.1%)
- At 8.5%, your monthly EMI will increase to Rs 38,446 (Increase of 21.7%)
What if you have a shorter loan tenure?
Here are your answers for lower loan tenures.
Increase in EMI of 25-year home loan of Rs 50 lakh
If you were to take a Rs 50 lakh home loan EMI for 25 years at an earlier low-interest rate of 6.5%, then you would have had a monthly EMI of Rs 33,760. If the interest rates now rise, then :
- At 7.0%, your monthly EMI will increase to Rs 35,339 (Increase of 4.7%)
- At 7.5%, your monthly EMI will increase to Rs 36,950 (Increase of 9.4%)
- At 8.0%, your monthly EMI will increase to Rs 38,591 (Increase of 14.3%)
- At 8.5%, your monthly EMI will increase to Rs 40,261 (Increase of 19.3%)
Increase in EMI of 20-year home loan of Rs 50 lakh
If you were to take a Rs 50 lakh home loan EMI for 20 years at an earlier low-interest rate of 6.5%, then you would have had a monthly EMI of Rs 37,279. If the interest rates now rise, then :
- At 7.0%, your monthly EMI will increase to Rs 38,765 (Increase of 4.0%)
- At 7.5%, your monthly EMI will increase to Rs 40,280 (Increase of 8.1%)
- At 8.0%, your monthly EMI will increase to Rs 41,822 (Increase of 12.3%)
- At 8.5%, your monthly EMI will increase to Rs 43,391 (Increase of 16.4%)
Increase in EMI of 15-year home loan of Rs 50 lakh
If you were to take a Rs 50 lakh home loan EMI for 15 years at an earlier low-interest rate of 6.5%, then you would have had a monthly EMI of Rs 43,555. If the interest rates now rise, then :
- At 7.0%, your monthly EMI will increase to Rs 44,941 (Increase of 3.2%)
- At 7.5%, your monthly EMI will increase to Rs 46,351 (Increase of 6.4%)
- At 8.0%, your monthly EMI will increase to Rs 47,783 (Increase of 9.7%)
- At 8.5%, your monthly EMI will increase to Rs 49,237 (Increase of 13.0%)
So that’s how your EMIs for a new home loan is set to increase as policy rates are increased by RBI and then passed on to borrowers by the lenders eventually. Depending on the actual increase in rates and the tenure of your loan, the EMIs can go up from 3% to almost 21% for new loans!
While External Benchmark Rate (EBR) home loan EMIs will be the quickest to go up, next in line will be the home loan interest rates of other regimes like the MCLR, base rate and BPLR that will receive the rate hike transmission a bit later.
What are your options?
Not many. Though if you are an existing borrower, then check with other lenders and switch loans if you get a lower rate elsewhere. You can bargain for a lower rate if your credit score has improved since you took the loan initially. If higher EMIs are not possible for you, then you can even check for tenure extension. But this will increase your interest costs even further. Or you can also consider making part prepayment to keep your EMI and tenure unchanged if allowed by your lender.
So that’s how home loan EMIs will increase as RBI policy rates are increased in 2022.
PS – With the rate hike cycle in full force, it’s not only your loan rates that will rise. Even FD interest rates will increase in the coming months.
Related Readings on Home Loan:
- How to quickly prepay Rs 50 lakh home loan?
- How to quickly prepay Rs 1 Crore home loan?
- How much home loan should you take?
- Do a SIP of 1% of Home Loan
- Best time to prepay your home loan is?
- Home loan interest is paid off slowly in initial years
- Home loan tax deduction benefits
- Don’t use all your savings for down payment
- Ready to Move or Under Construction House
- To know more about the EMIs for different loan amounts, check the articles on Rs 25 lakh home loan EMI, Rs 30 lakh home loan EMI, Rs 40 lakh home loan EMI, Rs 50 lakh home loan EMI, Rs 1 crore home loan EMI or you can even use this free home loan EMI calculator
- How to manage a home loan smartly?