Home loans sure to cost more

Here is bad news for those who availed home loans on floating rate. With the Reserve Bank of India hiking the repo rate recently, most of the public sector as well as private banks are set to increase rate of interest on home loans.The rate of interest on home loans are set to be hiked by 50 basis points.The banks are expected to effect the hike from August 1. The banks have their own reasons to defend the hike but for people from middle class background who already find it tough to pay equal monthly instalments (EMIs), the proposed hike will make it tougher for them to pay EMIs. “The rate of interest on home loans has been increased for 12 times in a year. The proposed hike in interest rate will make it difficult for me to pay EMIs. I had availed home loan at 7.50 per cent seven years ago, now I have to pay 11.25 per cent,’’ says Bhagya Reddy, an employee of a five star hotel.There are a few banks that accept part-payment of the principal amount. It will enable the borrowers not to feel the burden of hike in home loans. ‘’Yes, it is true.Part-payment of principal amount will reduce the burden of interest since the balance of principal amount will come down. But how many borrowers have such luxury to pay part-payment of the principal amount? Is it possible for borrowers to make part payment while the rate of inflation is at peak?’’ asks Bhagya.The burden of hike in home loan depends on the duration of the loan. More the duration, more the burden.For example, one has to pay Rs 690 extra on an EMI of Rs 20 lakh loan availed on a 20-year duration while Rs 500 extra on similar amount for a five-year duration at the rate of 11.25 per cent. The increase in essential commodities prices and home loan interest rates may compel prospective borrowers of home loans to postpone their plans. “I thought of buying an apartment for Rs 30 lakh by availing a housing loan of Rs 20 lakh but the hike on home loans has changed my plan. I have to pay Rs 21,680 EMI at 11.75 per cent for a loan of Rs 20 lakh for a period of 20 years. It will be difficult for me to pay Rs 21,680 per month. However, there is no guarantee of hike on home loans in the near future,’’ said Naveen Kumar, a software engineer.The hike in home loan rates will be a disadvantage for many builders. They opine that there was no need for the banks to increase the rate of interest on home loans. “The proposed hike of 50 basis points will ruin the real estate business. I do not know how the hike in home loan rates will bring down the inflation. I hope the banks will reconsider the decision of hiking the home loan rates,’’ said R Nagaraja Reddy, President-elect, Confederation of Real Estate Developers’ Associations of India-Karnataka(CREDAI).