Is it time to rejig your loan?

The RBI has changed its policy stance from “neutral” to “calibrated tightening”, meaning that the rates in the current rate cycle will either remain stable or move upwards. What this means is that rates are certain to go up, if not now, then some months down the line. Various macroeconomic factors, such as the price of crude oil, foreign exchange rate, inflation, RBI’s monetary policy and movements in bond markets are also likely to create an upward pressure on home loan rates.

Borrowers who took large home loans when interest costs were low may have to do substantial  belt-tightening as an increase in interest rates is imminent. Interest rates vary widely depending on the lender and also on the borrower’s credit profile. It’s possible that one borrower may be paying a 10 per cent interest rate or more while another could be paying close to 9 per cent. 

Existing borrowers, whose interest rates on home loans are at least 50 basis points more than what major banks are charging at present, should consider  home loan balance transfer. Opting for a balance transfer will help them save cost — they will be able to either lower their EMI or their tenure.

Financial planners advise borrowers to offload a loan if they have the capacity to foreclose it. Those  sticking to a loan just to save on tax should re-assess the amount saved as tax and the extra amount that they would be shelling out due to increased interest rates. Investing the surplus money in long-term equity funds while continuing the loan is also a good strategy.        — S C Dhall