Home loan rates have increased from 7.5% to average 10.75% with recent rate hikes.In the near future it doesn't seem likely they are gonna go southwards.As an individual how do you cope up with rate increase which is about 25% more.

What do you think is the future of Home Loan Interest Rates

Most consumers took a Floating rate Home loan which is linked to rate increase and market conditions.The advantage of floating rate was that they are usually priced 75-100 basis points lower than fixed rates.

So what are the options you might have?

Pay higher EMI and reduce the loan tenure

Increasing your EMI may be the best option if you expect the interest rates to rise in future as you have the advantage of not prolonging your loan period at higher rates.In addition, you may also be able to get tax breaks on your increased interest outgo.

The disadvantage in this option is the pressure of the higher EMI on your monthly budget.This may lead to sacrificing some of your lifestyle expenses or reduce your disposable income. This may not be a good option for those who are financially overstretched now.They may want to keep the same EMI and lengthen the tenure.

Extension of the tenure of the loan.

Normally, banks follow the strategy of increasing the tenure of the loans. This strategy is beneficial if the expectation is that the interest rates will fall in the future. In a rising interest rate regime, increasing the tenure of the loan will increase the cost of your home. This can work better for very young borrowers.

Advance payment of part of the loan to retain the original EMI.

Prepayment of loan implies paying a lump sum immediately so that it reduces the outstanding balance.This amount will be adjusted against the outstanding principal component of the home loan.This is the best way to retain the original EMI and tenure of the home loan.

This way,the EMI does not go up and neither does the tenure of the loan, despite the increase in interest rates. The drawback in this option is the ability to raise that kind of cash may be difficult. It may lead to liquidating some existing investments or pledge financial assets such as an insurance policy or national savings certificate and receive an overdraft facility that will allow you to make the prepayment .

Others factors that have to be kept in mind before prepayments is whether there is any penalty for the partial prepayment of your loan and any loss of tax benefits