Hyderabad: The Reserve Bank for the first time in four-and-half-years raised key interest rate on Wednesday by 25 basis points to 6.25 per cent on inflation concerns arising from surge in international oil prices.
This will make the home loans, among others, costlier, if the banks decide to implement the new rates.
With this, the EMIs will get longer or the quantum of money to be paid per EMI will increase. For a Rs 20 lakh loan, the burden could be an additional burden ranging from Rs 1.14 lakh to 2.44 lakh.
According to Certified Financial Planner P Sai Krishna, for a loan of Rs 20 lakh, at the current rate of interest of 8.6%, the EMI will be about Rs 17,483. This is for a 20-year tenure (240 months). Assuming that the loan has been repaid for two years (24 months), the effective remaining EMIs to be paid will be 216 months.
However, with the hike in interest rates, banks are likely pass on this to the home loan customers, existing as well as new. Only those who have taken loan on fixed rate of interest will not be impacted.
The home loan rates could go up by 40 or more basis points. If it increases by 40 bps, the rate of interest will be 9 per cent. Under the new rate, the customers have to pay 14 months more. That means the EMIs from 216 will increase to 230. This implies that out of the 24 months repaid, 14 months will be wiped out. That is more than Rs 2.44 lakh compared the repayment at old interest rates.
Or if the tenure is not increased, the EMI will have to be increased by Rs 500 and pay about Rs 17,983 per month for the remaining 216 months. This will be Rs 38.84 lakh if the rate of interest is 9 per cent compared to Rs 37.7 lakh at old rates of 8.6%.
However, there will be a small relief for customers who are investing in the fixed deposits and other such instruments as these will fetch a slightly higher returns.
Giving a lenders perspective, Deo Shankar Tripathi, Managing Director & CEO Aadhar Housing Finance, which mainly lends in the affordable housing, said most banks have already enforced an increase upto 20 basis points in the recent times.
“Banks may or may not pass on the hikes immediately. The RBI, through the increase in repo rates, has signaled that banks can increase the rates. However, that will depend on the marginal cost of funds based lending rate (MCLR)- the minimum interest rate of a bank below which it cannot lend. If this has increased or will increase, the banks will increase the rates,” said Deo.
The RBI has also increased the priority sector lending limit from Rs 28 lakh to 35 lakh in metros and from Rs 20 lakh to Rs 25 lakh. Priority sector lending has to be mandatorily be at least 40 per cent, he said.