Home loans up again

Your dream house could get dearer. With interest rates on home loans curving up, EMIs will no longer be that easy.

india Updated: Mar 22, 2006 10:39 IST

Your dream house will soon become dearer. With interest rates on home loans curving up, EMIs will no longer be as easy as they used to be.

HDFC has set the ball rolling. HDFC chairman Deepak Parekh has said it will increase the lending rate by 50 basis points — or 0.5 percentage — from April.

Just last month it had hiked the rate by 50 basis points. A banker from a leading financial institution contends that the cost of funds is rising and banks are forced to pass on the burden to consumers.

So in real terms what could the burden be? An HDFC official says after the February hike, a 20-year loan of Rs 20 lakh is being given at 8.5 per cent interest. After the hike, the actual interest rate would move up to 9 per cent.

For those who have already taken, say, a 20-year loan of Rs 1 lakh, the EMI at 7 per cent is Rs 775. If the EMI remains unchanged, the repayment period will increase to nearly 22 years at 7.5 per cent, to 24 years and 8 months at 8 per cent, to 28 years and 11 months at 8.5 per cent and a little over 38 years at 9 per cent.

The good news? A top banker from ICICI Bank says this increase is a temporary phenomenon and once liquidity improves, the rate will come down. To improve the liquidity, bankers say the government or the RBI must come up with some drastic measures. Till then, be prepared to loosen the purse strings if you are still keen on that house.

First Published: Mar 22, 2006 01:46 IST