Low Home Loan

By: EconomyWatch Content   Date: 23 December 2009

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Buyers constantly speculate whether there will be any change, upward or downward, in interest rates. A sudden rise in interest rates may put your budget out of gear. This also leads to a significant rise in EMIs (Equated Monthly Installment). However, if you are among those who are caught in the vicious circle of rising interest rates and monthly payments, you need a solution.

Low Home Loan: Tips to Handle a Rise in Interest Rates

Here are some tips that you can follow to break the vicious circle of rising interest rates:

Shift to Fixed Interest Rate: If you are on a floating interest rate and are speculating a rise in interest rates, it is ideal to convert your variable mortgage loan into a fixed interest rate mortgage. However, this step requires some considerations regarding the fees that you will have to pay for the conversion and the period of the new interest rate.

Switch to a Lender Offering Better Rates: When the home loan market goes through rising interest rates, banks and housing finance companies (HFCs) bear the burden to a considerable extent. So, find a lender that offers lower rates than others by doing some comparison shopping. You can do this online as well. Even a difference of 0.25% can impact the total amount of money to be paid over the loan term. Some banks also offer a balance transfer facility for some fees. However, make sure that the terms pertaining to balance transfers and EMIs are not very stringent.

Ask for an extension in the Loan Duration: The best and easiest way to reduce your EMI burden of monthly income is to ask for an increase in the term of the loan. Your chances of getting an extension are influenced by your age and employment track record.

Pursue Prepayment: Many major banks offer prepayment options to their clients to enable them to pay off the loan sooner. It is advisable to prepay your loan using you current assets, such as a fixed deposit. Avoid taking another loan or overdraft on your current deposits because this will again be a loan and not reduce your repayment burden.


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