labels: investment - general
Interest rate hike: Is your pocket burning yet? news
28 July 2006

Here is a handy table for home loan borrowers from CNBC-TV18 on how much a quarter percentage point hike can increase their EMIs.

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 installments, which means they can increase the duration of their loan.

Here's how the calculation works: when interest rates increase by a quarter percentage point, the additional amount to be paid on a Rs10-lakh loan for 20 years is Rs1,800 per year, an hit of Rs36,000 for the next 20 years.

Likewise if there is an increase of half a percentage point, the EMI increase for a Rs10- lakh loan, for the same 20 year tenure will be Rs3,600 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 2005. This means the monthly EMI on a Rs10-lakh loan for a 20 year tenure would have gone up by Rs1200 and his total outgo over 20 years will be over Rs2.5 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.

 


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Interest rate hike: Is your pocket burning yet?