Home Loans Interest Rates are Rising

The interest rates of home loans have begun to rise again. One may expect the interest rates to rise by about 200 basis points (2%) in two years. This is expected to increase the home Loan tenure, as the interest burden increases. To ensure home loans don’t become a burden over time, borrowers need to take corrective actions. Firstly, one can opt for refinancing the loan based on a cost-benefit analysis of each option. This can be done by asking the lender to lower the interest rates, by paying a small processing fee, or by transferring the loan to another lender who is offering better terms. However, the latter involves more paperwork and has higher costs. The second option is to increase the EMI. Higher EMIs are equivalent to micro pre-payments whereby the borrowers can bypass the pre-payment charges and also save on interest in the long run, as they repay the loan early. A one-time lump-sum prepayment can also erase the additions in interest. Another option is to systematically prepay 5% of the loan balance every 12 months. Mathematically, this pays off a 20-year loan in around 12 years at a constant interest rate.