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Disappointed by RBI? Take measures to reduce your home loan burden

Financial planners feel it is too early to predict if banks will increase interest rates on home loans, as many banks, including SBI recently raised rates.

, ET Bureau|
Last Updated: Sep 20, 2013, 01.21 PM IST
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Financial planners feel it is too early to predict if banks will increase interest rates on home loans, as many banks, including SBI recently raised rates.
Financial planners feel it is too early to predict if banks will increase interest rates on home loans, as many banks, including SBI recently raised rates.
MUMBAI: Home loan borrowers are disappointed after the Reserve Bank of India (RBI) hiked the repo rates by 25 basis points (100 bps = 1%) on Friday. However, financial planners feel it is too early to predict whether banks will increase interest rates on home loans again, as many major banks, including State Bank of India, have raised rates only recently. "This is probably the first time that measures like these (reduction in the MSF rate, with simultaneous increase in repo rates) have been taken. Therefore, the implications, are not immediately clear, though overall, I would say it's status quo," said Sumeet Vaid, founder and certified financial planner, Freedom Financial Planners. Pankaj Mathpal, certified financial planner, Optima Money Managers, feels that existing borrowers may be spared the rate hike and the rates might go up only for new borrowers. "The picture will be clear only over the next two days," he said.

However, some experts believe that banks may again hike rates. "Though many banks have recently raised rates, SBI's decision to hike Base Rate on Thursday and now the RBI's move could prompt some banks to increase their lending rates again," said Harshvardhan Roongta, certified financial planner, Roongta Securities.

Certified financial planner. But many market participants believe that the increased liquidity will check rate rise. "RBI has increased the repo rate by 25 bps, which will increase the borrowing cost. However, with reduction of MSF by 75 bps and reduction of minimum daily maintenance of CRR from 99% to 95%, it has relaxed tightening norms. While the real estate industry has reason to be somewhat disappointed on the increase in borrowing cost, the RBI has made provisions for increased liquidity in the system," said Anuj Puri, chairman and country head, Jones Lang LaSalle India.

The RBI governor also said that the effective rate for the banks will come down, on the back of decrease in the marginal standing facility rate and relaxation in cash reserve ratio (CRR) requirements.

However, if your bank decides to hike its base rate, you need to look at taking some measures to reduce your interest rate burden. "You can consider part-payment of your principal amount, so that your outstanding amount and interest burden come down," said Roongta. "In addition, you can compare rates of other lenders and make a switch if it helps you save on the interest burden."

Also, if your income-expenditure position is comfortable, you can ask your bank to increase your EMI amount, instead of extending the tenure which is the normal practice. "We always recommend insisting on an EMI hike to mitigate the impact of rate increase. In the long term, this will benefit the clients as rates start declining," said Vipul Patel, director, Home Loan Advisors, a mortgage consultancy firm.
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