Repayments may increase by over Rs 3.5 lakh (Rs 350,000) over a 20-year period on a Rs 20 lakh (Rs 2 million) home loan, if the bankers hike interest rates by up to 1 per cent in the wake to tight monetary measures announced by the Reserve Bank of India on Tuesday.
Consumers may have to fork out up to Rs 1,500 more every month for a home loan of Rs 20 lakh, as bankers say that interest rates could go up by 0.5-1 per cent after RBI's hawkish policy aimed at containing inflation.
As such private and public sector banks are offering home loans for interest up to 14.75 per cent per cent depending on the quantum and tenure of the credit period. At the lower end of the band, the interest rates start at 9.75 per cent.
An analysis of the repayment computation tables used by banks suggests that the EMI (equated monthly instalment) would rise by up to Rs 75 per lakh (per Rs 100,000) for a 20-year loan tenure after a one per cent interest rate hike.
This additional burden in the EMI would increase the overall interest cost for a loan taken for a period of 20 years, by a whopping Rs 360,000 crore (Rs 3,600 billion).
After the Reserve Bank asked the banks to park more cash with it and also increased its short-term key lending rates for them, the bankers across the board said that they would have to increase the lending rates for commercial and consumer loans, including for cars and housing.
The rates could rise by between 0.5-1.0 per cent, the bankers said, after RBI increased the cash reserve ratio by 0.25 per cent and the repo rate by 0.50 per cent.
The floating home loan rates currently vary between 9.75 per cent to 12.5 per cent, while that for fixed rates are 11.25 per cent to 14.75 per cent for a 20-year loan.
At the current rates, the EMI works out to be Rs 1,137 per lakh for the top-end floating rate home loans, which could increase to Rs 1,208 after a one-per cent hike.
Similarly, for the fixed-rate home loans, the EMI currently stands at Rs 1,299 per lakh for the top-end rate of 14.75 per cent and would increase to Rs 1,373 if the rates are increased by one per cent.
Leading banks currently charge a floating rate of about 11.5 per cent on a 20-year loan, for which the current EMI works out to be about Rs 1,067 per lakh. This would stand increased by Rs 70 to Rs 1,137 if the rates are revised upward by 1 per cent.
For the fixed rate home loans, the current rate charged by leading players is 14 per cent for a 20-year loan, with an EMI of Rs 1,299, which would increase by Rs 74 to Rs 1,373 for every Rs 1 lakh of loan.
The home loan rates have been rising fast in the recent past after a sharp plunge seen at the beginning of this decade. The home loan floating rates stood at about 14 per cent in early 2000, after which it started falling and had plunged by half to about seven per cent by the end of 2003.
However, it started rising thereafter and is now close to regaining its previous high.
Being lower by about two per cent than the fixed rate loans, floating rate home loans are said to be preferred by close to 90 per cent of the home loan customers.
Moreover, very few banks offer a fixed rate home loan, the interest rate for which remains truly fixed for the entire tenure of the repayment.
