Borrowers' luck to run out by Aug 1

Mumbai: It's two days after the Credit Policy and no rate hikes have been announced yet. But the bankers say borrowers' luck should run out by August 1.

By then most banks and housing finance companies will announce their rate hikes.

Existing home loan borrowers may soon have to shell out a couple of thousand rupees more on their monthly EMIs.

Alternately banks give borrowers the option to increase the number of EMI instalments, which means they can increase the duration of their loan.

Here's how the calculation works:

When interest rates increase by a quater percentage point, the additional amount to be paid on a Rs 10 lakh loan for 20 years is Rs 1800 per year, a hit of Rs 36,000 for the next 20 years.

Likewise if there is an increase of half a percentage point, the EMI increase for a Rs 10 lakh, 20 year loan will be Rs 3600 per year.

However, if a customer opts to keep the EMI unchanged, the duration of the loan will increase by 6 to 7 months on a 20-year loan, if there is a hike in rates by a quarter percentage point.

EMIs will go up by 12 months if rates rise by half a percentage point.

So far banks have, on an average raised interest rates by 2 percentage points since June last year.

This means the monthly EMI on a Rs 10 lakh loan for a 20 year tenure would have gone up by Rs 1200 and his total outgo over 20 years will be over Rs 2.5 lakh.

If the customer choses to increase the number of EMIs instead, he would be paying 48 to 54 more EMIs. For some this could mean they will be paying EMIs even after their retirement.