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Real Estate | Interest rate hike, ...Interest rate hike, how to cope?Total Word Count: 498 Author Rating: NA  Rate this article
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Reserve bank of India (RBI) has shown a hard step of increase in the interest rate of REPO (rate at which the RBI lends to the banks) in beginning of the first quarter for the Year 2011. The hike in the interest rates of saving account along with the growth in repo rates, made the banks to charge high rate of interest on their home loan products. Most of the key players in the market have already increased their rate of interest from 0.50% - 0.75% with the consideration of the competitive level in the desired market.
Effects borne by borrowers:
Consumer who avail Home Loan to acquire such Property in India, are affected the most due to current hike in interest rate. Home loan for the new borrower got even tougher compared to previous ones. Not only this, existing home loan borrowers have to pay more to the creditors who had availed the floating rate of interest from the lenders. The sudden growth in the interest would definitely affect the borrowers who have the home loan for longer tenure, as bankers have complete power to ask them to pay as per the new interest rates. Banks charge as per the new rate of interest, now hat to do? One of the best remedy to such problem, is the one can make part payment towards his home loan and make oneself safe in the end . For instance, if a borrower had availed a loan of RS Ten Lakhs, and if he make part payment of 20% it will get deducted from his Principal outstanding amount to repay the bank. While making repayment it should also be keep in mind, that to repay the current loan amount he should not borrow money or funds from the other source or lenders. Paying the part payment of outstanding property loan you may escape from the burden of paying more and increased amount or the numbers of EMI in end of the tenure. Implications of full repayment of home loan: Interest rates and the home loan tenure goes on simultaneously on one single track, therefore the up or down of the interest rates is a part of the deal. Hence fore it is recommended that until & unless you have excess or more of funds to repay the property loan amount you should not think of repaying the loan amount. Before gwtting in to the deal of repaying the outstanding loan amount you may also think of some other investment form which you can earn good amount of interest fro your future prospect. Alternative investment option can give good amount of returns and you can repay the same in the coming future. Interest paid on the home loan is subject to Tax deductions every year as per the law & rules if Property Law or House Tax. So continue paying the EMI which is burden in present can be a fruit to you in the future Especially when you are paying the full outstanding loan amount then remember the implications of interest cycle, as certain amount or % of penalty charged by the banks for the pre payment of loan. Tax bifurcations which you were getting would no longer be the source once the entire home loan is repaid. You can claim for the tax benefits in respect of interest payment and principal amount. That is why the effective rate of your home loan is substantially lower than what you are actually paying. ArticleSource: ArticlesAlley.com
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