Home Loan Tips: It is every person’s dream to have their own house. However, when it comes to buying a house, 80-90 per cent people need a home loan. However, most people often make a mistake after taking a home loan, due to which their loan, which could have been repaid in 20 years, takes up to 25-30 years or more to be repaid.
How does the home loan tenure increase?
Most banks give home loans at floating rates.
That means your home loan rate will depend on what the Reserve Bank of India’s repo rate is.
The repo rate is the rate at which loans are given to all the banks by the RBI.
When there is a change in interest rates, it increases the period for repaying the home loan.
Most people do not pay attention to this in the beginning.
Later, when they come to know that the tenure of their loan has become too long, they complain to the bank.
Understand it with this example
Suppose you took a loan of Rs 30 lakh at the rate of 8 per cent for 20 years.
In this way, your EMI will be around Rs 25,093.
Let us assume that after 5 years of taking the home loan, your home loan rate becomes 11 per cent.
At this time, the outstanding principal amount of your home loan will be around Rs 26 lakh, because in the EMI of the initial years, the share of interest is more, while the share of principal amount is less.
In such situation after 5 years, you will feel that now 15 years of home loan EMIs are left, but this is not the case.
Actually, as the interest rate increases, it gets adjusted with the tenure of your loan.
This is done so that customers are not burdened with excessive EMI.
Banks also want to extend the duration because the longer you keep paying EMI, the more the bank will earn from you.
So if your EMI is kept close to Rs 25,093 as before, then the remaining tenure of your loan will not be 15 years, but 28 years.
Here, if your EMI is seen in terms of 15 years, it will increase to around Rs 29,500.
In this way, it will take you about 33 years to repay what you were supposed to repay in 20 years.
How to protect yourself from such situations?
If you do not want the tenure of your home loan to increase, whenever the interest rates increase, you will have to talk to the bank and get your loan restructured.
That means you will have to ask the bank not to extend the tenure, but to increase the EMI as per the new interest rate.
Most of the customers make this mistake and do not restructure the loan from the bank.