The chances of further rate reduction are very low. However, home borrowers should not ignore the chance of rates going up from current levels. Since the rate transmission is smooth now, any rate increase by RBI will immediately reflect in their home loan rate. Any increase in the home loan rates will increase the EMI (or loan tenure) and could mess up your financial planning.

For instance, the EMI for a 20-year home loan of Rs 1 crore will be Rs 75,739 @6.7%. The same will go upto Rs 81,787 @7.7% and jump to Rs 88,052 @8.7%. The best thing to do in situations like this is to go for fixed-rate loans. However, the options are very limited and only a few options offer fixed rates that too for a limited period. More importantly, these partially fixed-rate home loans also charge higher interest rates.

Partially fixed loans will cost you more

Consider the additional costs before going for partial fixed loans.

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While these rate increases are not in your hand, you can be prepared for that by assuming a higher rate of interest. “Instead of the very low rates now, assume a reasonable home loan rate of around 8.5% and invest the remaining EMI somewhere else systematically,” says Aparna Ramachandra, Founder & Director, Rectifycredit.com. For instance, the EMI for a 20-year home loan of Rs 1 crore is Rs 86,782 @8.5% and will be Rs 75,739 @6.7%. You should invest the difference of Rs 11,043 in a short-term debt fund every month. This corpus will act as a backup if the rates go up. You will be in a better position even if the rate doesn’t go up because this money will be getting into savings instead of spending.

Taking a home loan? Make sure your financial plan isn’t hit, ask yourself these 5 questions…

​Can you afford to take a home loan?

You, like many others, too may be tempted to bag those decade-low interest rates on home loans and make the most of slashed real estate prices before things starting recovering and going back to normal. As much as these external factors seem appealing, the decision of taking on added debt to buy a house also depends on certain factors about you and your finances.

For many, buying a house means stretching finances to even an uncomfortable limit and stretching yourself too thin in the process. Before you apply for a hefty home loan, make sure you are standing on firm ground as far as your personal finances and goals are concerned. Ask yourself these five questions about your emergency fund, down payments, EMIs and status of other financial goals, to ensure that your home loan doesn’t end up as a noose around your neck.

Read more: EconomicTimes

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