New Delhi: Renu Bhargav's dream home is giving her sleepless nights. After buying the apartment last year with a home loan of Rs 40 lakhs, she and her husband decided to renovate it. But instead of thinking about the wall paint and tile colours, they're living with the uncertainty of just how long will it take them to repay the loan.
Successive rate hikes by the RBI within a few months have hit both new and existing home loan borrowers very hard.
"Our loan is for 15 years and my husband, who is now 45 years old, will retire by then. If the bank increases the installments, the tenure of the loan will also increase. And till then, he will retire. I really don't know how we are going to repay it. We had planned the loan according to the time till his retirement," says a helpless Renu, the housewife
Until now, consumers could look to fight rate hikes by simply increasing the tenures of repayment so that the EMIs remain constant. But that too has now got stretched to the maximum with average home loan tenures rising from 13 to 20 years. So it's now the turn of EMIs to rise.
"Customers, who will actually see an EMI hike will be close to about 40 per cent. And I believe, we will try to reduce this whole burden by first increasing the loan tenure and only if we don't have that option, will we raise the EMI on the customer," says ICICI Bank's senior General Manager of Retails Assets, Rajiv Sabharwal.
Until three years back, the EMI for a loan of Rs 10 lakhs for a term of 10 years at an interest rate of 7.5% at about Rs 12,000. With the interest rates hovering at 12.5 per cent, the EMI for the same loan has now risen by more than Rs 2,500.
New customers are not much better off. Two years ago, people who could get a home loan Rs 1 lakh can now get only Rs 65,000 as loan eligibility has come down drastically.
Every 1 per cent hike in the interest rate reduces loan eligibility by 7 per cent for every lakh of rupees. Consecutive rate hikes have reduced this further. Little wonder then that banks expect growth in the home loan business to go up by no more than 20 per cent this year, which would be probably the lowest in five years.