What could longer tenure mean for mortgage borrowers?

The recent decision by the Reserve Bank of India (RBI) to raise the repo rate by 50 basis points (bps) has impacted home borrowers with a dilemma. With this revision to the repo rate, existing mortgage borrowers are now faced with two choices: pay higher monthly installments or continue paying the same amount but for a relatively longer period of time.

According to a report by Livemint.com, analysis by BankBazaar indicated that home loan borrowers could lose out if they refuse the change in monthly equivalent payment (EMI) and extend the period to account for the 190 point hike. basic between May and September.

The report goes on to explain this by mentioning that home borrowers who took a loan of Rs 50 lakh for 20 years at 7% saw the rate increase to 8.9% in the last two years. In this case, if such borrowers keep the period fixed but choose to pay a higher installment each month, they would have to pay around Rs 14 lakh as the total additional interest payment over the life of the loan.

In comparison, if home loan borrowers pay their EMIs for an additional 184 months by extending the tenure but not changing the monthly amount, the interest outflow will be around Rs 71 lakh, the report mentions.

However, if the total repayment term of the loan reaches the age at which the borrower is supposed to retire, then even the banks will not be able to increase the term any longer. In this case, if the loan amount is scheduled such that a borrower is expected to repay until age 60 or retirement age, a rise in these rates would mean EMIs. higher because the time period will not be increased.

Therefore, in order to address these issues, the report states that banks urgently need to find a solution that would involve both an increase in tenure duration and the amount of EMI.

Quoting a senior banker on condition of anonymity, the report mentions that since repo rate changes by the RBI were so frequent, on several occasions banks did not even have to go through the process of asking borrowers home loans the option they wanted to opt for. As a result, the duration of the loan amount was unilaterally extended and the monthly EMI amount remained unchanged. Regardless of all this activity, bankers apparently would not have seen much change in demand for home loans.

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