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Tackling Rising Interest Rates

Author: Pooja Agrawal
by Pooja Agrawal
Posted: Mar 16, 2020

Due to the recent incidents that lead to an increase in oil prices, a reduction in the value of rupee, chances are the interest rates will move up soon. The rise in the prices of crude oil, inflation, global epidemics, downfall in the value of the currency will lead to interest rates rise in the coming years. These rates can add to the EMI burden of home loans and other loans respectively.

A home loan is a significant way using which a buyer can buy his/her dream home and if the repayment becomes a burden then the financial situation can take a major hit. As a buyer, it is important to do research before jumping into the game. This includes knowing thoroughly the rate of interest at which the home loan will be charged. This can help in making a better decision in buying a home. A recent study has shown that there is a big gap between loans and deposits and hence they have become more careful about the lending business.

An existing borrower is subject to witness the rise in the interest rates. So how can a buyer be prepared to tackle this increased rate of interest load? Let’s have a look.

Prepayment of the home loan: It is important to plan your finances beforehand and so it makes more sense to see through the tenure of the home loan until it is serviced. After all, it will help you to save for other critical expenses. But in case of the rising interest rates, it makes more sense to prepay the home loan so that you don’t pay more than what you planned earlier. Most banks do not charge any prepayment penalty on the home loan. In case you have enough income after keeping aside your regular expenses, then paying extra EMI is not a bad idea which can save you lots of money in the long run when the rates increase.

Buy your home immediately: There are always two options when buying a home: either you pay the price and buy your dream house immediately or wait for the accumulation of the home down payment. In the later, there are chances that the house of your choice will be unavailable or unaffordable in the future. Delaying the home buying decision can backfire on personal finance. The inflation works continuously and degrades the value of your money. If your delay your home buying decision too frequently, then maybe you need to pay more later on.

Switching to fixed interest rates: A buyer must be active with knowing the interest rate charged on the home loan and should choose one as per the planning. However, there’s one more thing about interest rates a buyer must know about and that’s the type of interest rate. There are two types of interest rates which are Fixed and Floating interest rates. Both have their own sets of pros and cons. While fixed interest rates give you a fixed rate based on which your financial planning becomes easier, floating interest rates are cheaper than fixed but are dynamic. Switching to a fixed interest rate will help you know how much interest is being charged on the home loan during the entire tenure of your home loan.

Well, nobody can see the future but putting a well-planned process into action can help a buyer to evaluate the probable outcomes along with seeking professional help, which should always be considered.

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Author: Pooja Agrawal

Pooja Agrawal

Member since: Jul 13, 2018
Published articles: 87

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