Rate hike Effects Home Loan EMI

Recently, the Reserve Bank of India (RBI) increased the interest rates. The short-term lending rate (repo rate) has been increased from 6.5 percent to 6.75 percent, while the short-term borrowing rate (reverse repo rate) has been raised to 5.75 percent from 5.5 percent with immediate effect. Keeping in view the liquidity situation, the central bank has kept the cash reserve ratio (CRR), the amount banks are required to keep with the RBI in cash, unchanged at six percent.

This is the eighth time since March 2010 that the RBI has resorted to policy rate hikes to tackle inflation. Inflation is still ruling above eight percent. The overall inflation was at 8.31 percent in February this year compared to 8.23 percent a month ago.
What happens to EMI in case of rate hike?
In some cases, if the interest rate increases, the EMIs remain the same but the tenure of the loan increases. So, the loan tenure may be extended by 1-2 years. Conversely, an increase in the interest rate will mean an additional cost for floating rate borrowers as the bank may change the EMI to reflect the increased cost. For fixed interest rate borrowers, there is no impact as they are insulated from interest rate movements, during the fixed period.
Impact on eligibility.
An important parameter to calculate loan amount eligibility is the prospective borrower’s ability to service the debt. Debt servicing is the capacity of the borrower to repay the loan, and on time. It is calculated by comparing the EMIs with the disposable income of the borrower. Disposable income is the amount left after meeting the routine monthly liabilities, and is the amount available to repay the loan.
While fixing the percentage of income that can be appropriated towards the EMI, the bank needs to make sure the borrower has adequate cash left to meet the routine living expenses, and the EMIs are serviced out of the surplus left. A higher interest rate and cost of loan can have an impact on eligibility.
In case the EMIs are kept low, the loan tenure has to be stretched. This will increase the interest cost for the borrower as well as the risk of the lender. On the other hand, a higher amount of EMI is prone to risk of default by the borrower.
For a given income, therefore, the bank calculates the amount available for the EMI, which is used to determine the eligible loan amount. In case there is any change in the loan amount, interest rate, tenure or the method of computing interest, the EMI changes.
In case the interest rate increases, with other variables being constant, the eligible amount will decrease. In case the interest rate deceases, the eligibility increases.
Short Note:
Fixed interest rate borrowers are insulated from interest rate fluctuations during the fixed period in case of an interest rate hike, the EMI can still remain constant if the tenure of the loan is increased an interest rate hike can have an impact on the eligibility the RBI has hiked the key policy rates as a part of the drive to bring the inflation rate under control

Comments

I have read this post. This post is a nice one that similar to loans in chennai , loans bazaar emi calculator chennai . That I will inform about your post to my friends and all the best for your future post..
Unknown said…
This blog having needful information about cheapest home loan emi so great info dude please keep it up.
Anonymous said…
Hello Everybody,
My name is Mrs Sharon Sim. I live in Singapore and i am a happy woman today? and i told my self that any lender that rescue my family from our poor situation, i will refer any person that is looking for loan to him, he gave me happiness to me and my family, i was in need of a loan of S$250,000.00 to start my life all over as i am a single mother with 3 kids I met this honest and GOD fearing man loan lender that help me with a loan of S$250,000.00 SG. Dollar, he is a GOD fearing man, if you are in need of loan and you will pay back the loan please contact him tell him that is Mrs Sharon, that refer you to him. contact Dr Purva Pius,via email:(urgentloan22@gmail.com) Thank you.

BORROWERS APPLICATION DETAILS


1. Name Of Applicant in Full:……..
2. Telephone Numbers:……….
3. Address and Location:…….
4. Amount in request………..
5. Repayment Period:………..
6. Purpose Of Loan………….
7. country…………………
8. phone…………………..
9. occupation………………
10.age/sex…………………
11.Monthly Income…………..
12.Email……………..

Regards.
Managements
Email Kindly Contact: urgentloan22@gmail.com

Popular posts from this blog

Important to Create Awareness of Fire Safety

Grant of Licence for Construction/ Reconstruction of any structure: