Home owners feel the pinch

Like Sandip most borrowers have reckoned with a rate increase of about 0.5 per cent till last year. But another 0.25 per cent hike — which was signalled by the Reserve Bank today — could bite into the pockets of home owners.

In the coming months as demand for credit soars from the businesses and elsewhere interest rates hikes could be sharper and most banks reckon could be as high as 0.5 to 1% in a year.

As of now, the interest rate for home loan is around 8.75-9% on a floating rate basis, which is expected to increase to around 9.5% or even 10% in sharper circumstances. In fixed rate loans, it is 0.5% higher. ‘‘There’s a definite hardening of interest rates and in the near term of 3-6 months home loan rates could go up by around 25 basis points,’’ says Harsh Roongta, CEO, Apnaloan.

Back of the envelope calculations show that if the interest rate rises by merely 0.25% for a Rs 20 lakh loan (from 8.5 to 8.75%), borrowers will have to shell out about 1.83% more in monthly outflows.

Similarly, if the rate hike is 0.5% to 9%, the house finance budget will go up by 3.7% and for a 75 basis points rise by 5.4%. ‘‘Those who already have a loan have little choice but to cough up the increase in installments. Fortunately most banks increase the tenures in India so there’s a little bit of leeway in terms of immediate outflows, but the tenures can shoot up substantially,’’ said a banker.

On the flip side, for borrowers who have opted for an increase in tenure instead, borrowers will have to continue to pay up their home installments from 8-15 months, which will vary between individuals depending on the balance tenure and outstanding loan amount.