Now, home loan EMIs set to rise

APRIL 6, 2007: Successive rate hikes over the past few months will impact both new and existing home loan borrowers, while existing customers will see a hike in their EMIs and tenures. Meanwhile, new customers too will not be spared; their home loan eligibility will go down by almost 35%.

The home loan interest rates have gone up by 5% in the past three years. Until now consumers were fighting rate hikes by simply increasing their tenures, so that the EMIs would remain constant. But that too has now stretched to the maximum with average home loan tenures rising from 13 years to 20 years. Now it is the turn of EMIs.

Rajiv Sabharwal, Senior General Manager-Retail Assets at ICICI Bank, says, ”Customers who would actually see an EMI hike will be close to about 40% and our belief is that we would try to reduce this burden by first increasing tenures and only if we don't have an option, will the passing on of the increase in EMI happen.”

Until three years back, for a 10-year loan of Rs 10 lakh, at an interest rate of 7.5%, the EMI stood at about Rs 12000. With interest rates at 12.5%, the instalment for the same loan has risen by more than Rs 2500.

New customers too are not spared. A loan of around Rs 1 lakh could be availed two years back as mortgage for the home, but now it is down to Rs 65,000.

Every 1% hike in the interest rate, reduces loan eligibility by 7% for every Rs 1 lakh. Consecutive rate hikes have reduced this further.

So, it is little wonder that banks expect growth in the home loan business to go up by no more than 20% this year, the lowest in five years.

Source: Moneycontrol