Mumbai: Housing loan customers are in for a rude shock as housing finance companies have started asking some of the borrowers to prepay a part of their loans and raise their equated monthly installments (EMIs) to avoid very high EMIs.

Lenders like HDFC and ICICI Bank are now asking customers to start looking at a combination of pre-payments and EMI increases to bring down their loan liabilities to manageable levels - a move that has started giving borrowers more pain than they had bargained for when they took the loans.

Others like the SBI are also in the process of sending out similar missives. SBI is likely to raise EMIs by July, although the bank fears that such a move could lead to some payment defaults.

"So far, we are not affected by this syndrome as in case of public sector banks the rise in home loan rate is not as steep as in the private sector," said U S Bhargava, chief general manager of Punjab National Bank.

The bank has managed to absorb the effect by increasing the tenure, which in most of the cases are limited to the active service age.

However, those in their late 30s or 40s will face pressure to repay part of the loan in advance.
Generally borrowers take loan for 15-20 years. A further increase in the tenure will mean that borrowers in their late thirties would have to pay monthly installments for a few years beyond the retirement age.

Home loan companies have started to lean heavily on some of their borrowers amidst a scurry among lenders to avoid bad debt following successive interest rate hikes in the last six months.

With interest rates on housing loans rising by 4-5 percentage points over the past two years, lenders are now realising that it is no longer enough to merely increase the EMI.

There is also no guarantee that rates won''t rise any further. The RBI has kept its cards close to its chest and will be looking closely at global cues.

Senior bankers do not expect Indian interest rates to rise further. With the inflation rate slowing to a 13-month low, many expect the RBI to refrain from tampering with key interest rates when it unveils the monetary policy review in July.