- Rising inflation resulted in central banks around the world hiking interest rates.
- This has also spilled over to an increase in home loan interest rates, resulting in an increase in home loan EMIs.
- Here’s how much India’s biggest banks have increased home loan interest rates in 2022.
Home loans are offered with two types of interest rates – floating and fixed. As the names suggest, the interest rate component either changes or remains fixed, depending on the type of loan you have opted for.
After staying at decadal lows for the past two years, home loan interest rates are rising again, increasing by up to 2% in some cases.
For context, amongst the banks and financial institutions listed below,
Now, after three rate hikes by the
Source: Respective banks, BankBazaar
Rising interest rates means borrowers with floating rate home loans will see an increase in their EMIs.
For example, if you have a home loan of ₹50 lakh from SBI with a tenure of 20 years, your home loan EMI prior to rate hikes would have been ₹38,018.
Now, after the rate hikes, your new EMI is ₹40,433. This is an increase of ₹2,415.
Fixed rate home loans run the risk of the borrower being locked in to a possibly higher rate of interest for a long period, especially in an environment where interest rates are changing constantly.
Floating rate interest loans, on the other hand, are revised on a quarterly basis and reflect the existing economic conditions.
Since predicting which way interest rates will go is difficult, and banks and financial institutions tend to know better than borrowers, one of the ways to identify which type of loan should be opted for is to see which loans are costlier currently.
For instance, if fixed rate home loans are costlier today, it means the bank believes interest rates will rise in the future. If a customer opts for a fixed rate loan, the bank will lose out on some of that higher rate of interest in the future. This is why it tries to offset this by charging more money for the fixed rate loan today.
On the other hand, if fixed rate loans are cheaper than floating, it means the bank believes interest rates will fall in the future.
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