Here's how you can tackle a ballooning EMI
Oct 04, 2013
Source : The Economic Times


MUMBAI: After the unexpected policy rate hike on September 20 by the Reserve Bank of India (RBI), many banks are contemplating an increase in their lending rates. If they decide to hike their base rates, home loan borrowers may have to deal with a ballooning EMI once again within a short span of time.

Several lenders, including the State Bank of India BSE -0.88%, ICICI Bank BES -0.8%, HDFC and Axis Bank BSE -0.77%, had raised rates by 10-25 basis points during the last month. If you are one of those borrowers saddled with an unmanageable EMI, you need to consider taking some of these measures to deal with the challenging situation.

Switch Lenders

The elimination of prepayment penalty on floating rate loans has made it easier for borrowers to switch lenders. If you can secure a lower rate from another lender, you should consider switching your loan. "Customers should connect with their current lenders and seek reduction in rates on their loans. In case the negotiations fail, they should think of refinancing," says Vipul Patel, director with mortgage consultancy firm, Home Loan Advisors.

"Only when customers begin switching proactively, will the lenders be forced to treat existing and new borrowers fairly." You can save around Rs 2,000 per month on a Rs 50-lakh loan (with a balance tenure of 17 years) if your new lender's rate is lower by just 25 basis points.

Another option is to go for the conversion facility. Banks allow you to switch to the current rate (which is always lower in order to attract new borrowers) in return for a one-time charge of 0.5-1% of the outstanding loan amount. It saves you the trouble of going through the documentation process all over again.

Here's how you can tackle a ballooning EMI

However, you need to do a cost-benefit analysis before making a choice between switching and conversion. "The conversion option may work for smaller loans in the under-30-lakh segment. But for higher loan amounts, it would be commercially wise to switch to another lender as processing fees are generally capped by most banks at Rs 10,000, or 0.25%, for balance transfers," explains Patel.

Ask for a Repayment Holiday

If you are facing a financial crisis or staring at the likelihood of job loss, you should consider this option.

"A number of borrowers, who are approaching us these days, are struggling to service their EMIs after losing their jobs. In such cases, you have to discuss the matter with your lenders and apprise them of your financial situation. If the bank is convinced about the genuineness of your problem, it might grant you an EMI holiday for a short period or till the time you get another job," advises VN Kulkarni, chief credit counsellor with the Bank of India-backed Abhay Credit Counselling Centre. However, remember, granting such relief is entirely at the bank's discretion as unlike corporate debt, there is no standard framework in place to restructure distressed individual loans.

Make a Part-prepayment

If you are sitting on huge cash surplus, you can consider this option. Part-prepayment brings down the loan amount and interest outgo. You can save a lot of money on interest, if the loan is relatively new. If you are a floating-rate borrower, you don't have to pay any prepayment penalty as it has been abolished by the Reserve Bank of India a year ago.

"Many people hold investments that earn, say 10%, while their home loan interest rate is 11%. In such cases, they can look at liquidating those investments and use the funds for part prepayment. Unless, of course, they are meant for certain financial goals. In which case, they should not be touched. Reduction in loan amount, and hence EMIs, will ease your monthly cash flows," says Harshvardhan Roongta, certified financial planner, Roongta Securities.


Latest Realty News

India facing pressure to accelerate structural reform
Oct 04, 2013
MUMBAI: The Indian economy has been under pressure with the recent depreciation of the rupee and capital outflows adding to structural constraints which are weighing heavily on its prospects for returning to a high growth path, says a new Asian Development Bank (ADB) report.
Panvel – The Next Real Estate Destination
Oct 04, 2013
MUMBAI: The last born in the family always gets the best in terms of resources, love and also gets the advantage of being parented by more experienced parents. Similarly, in the real estate space in Mumbai, Panvel is now getting the benefit of the following:
New Town in Kolkata inches closer to solar city
Oct 04, 2013
KOLKATA:The Centre has approved the masterplan presented by the state government to develop Rajarhat New Town as a solar city. It mentions ways as to how solar and renewable energy can be used in the township. It will be a Rs 400-crore project if all proposals are implemented.
Greater Noida Authority cancels allotment of 1,200 plots
Oct 04, 2013
DELHI: The Greater Noida Authority cancelled allotments of around 1,200 plots on October 1 on account of non-payment of pending dues by their owners. These include 1,173 residential plots in different sectors of the city. Authority officials informed that allotments of 25 industrial plots and 12 institutional plots have also been cancelled.
Bank credit to commercial real estate picks up in FY14
Oct 04, 2013
MUMBAI: After recording sluggish growth in the previous financial year, bank credit (loan) to commercial real estate (CRE) projects has picked up in the current financial year, registering a 17.4 per cent growth in August, compared to 8.6 per cent during the corresponding period of FY13.
Real estate investment in Odisha dismal
Oct 04, 2013
BHUBANESWAR: Odisha may be a favoured destination in attracting investments in the metal and power sectors, but when it comes to real estate, the state portrays a gloomy picture.
Real estate sector better off now than in 2009
Oct 04, 2013
MUMBAI: The market has beaten down shares of real estate companies over the past three months, as news of over-supply, weak demand and regulatory action kept coming. Analysts claim they are bored with all this talk of gloom and doom because the situation on the ground is not as bad as it was in 2009.
Brick by brick, Indian realty story crumbles
Oct 04, 2013
DELHI: After a huge inventory pile-up and delivery setbacks, the numbers for housing launches appear bleak, too, thus firmly establishing the real estate gloom story. Launches till July this year fell by 38 to 59 per cent across key markets such as Gurgaon, Navi Mumbai, Pune, Noida and Kolkata, compared with the same period last year. Bangalore has bucked the overall downtrend by reporting a rise in launches.
Ruias to sell Central Delhi bungalow
Oct 04, 2013
MUMBAI: The Ruia family, promoters of Essar Group, has put its 1,250 square yard bungalow in Jor Bagh, in Central Delhi, on the block.
VGN Developers calls for bids to set up hospital
Oct 04, 2013
CHENNAI: VGN Developers has called for bids from healthcare operators to set up and run a 100-bed hospital in a township project it is developing in Avadi, a Chennai suburb.

Latest Realty News Of State

Realty Talk's