Understanding The Different Ways In Which The Home Loan Interest Rates Affect You

Every borrower is always looking for the best home loan rates . It is not a surprise as the home loan rates have a huge influence on your financial life. Here is how they operate. Once you sign on the dotted line, the principal amount and the home loan tenure won’t change; however, the interest rates will. No wonder then that they are of utmost importance as far as borrowers are concerned. Any variation in the housing loan interest rates can affect 3 most important aspects of your home loan.

EMI affordability

Most borrowers optimize their home loan so that they can repay it as quickly as possible. In other words, the EMIsare at least or more than 30% of their monthly income. So, if there is any rise in the housing loan interest rates; the EMIs will increase, which will affect the monthly cash flow. You certainly cannot afford to pay the additional amount comfortably with the same income. In most cases, it affects the home loan repayment schedule. For any borrower, seeking home loan balance transfer will be an impossible scenario if they miss out on even a single repayment date.

Borrower’s repayment ability

If a borrower has to accommodate any increase in the EMIs without any difference in their income, the problem becomes a monthly challenge. The repayment ability of the borrower is not a minor infraction as it can have serious consequences on the finances. It will become a challenge to pay the home loan EMIs and other loans on time. You will be pushed into making a home loan balance transfer; wherein you will get lower EMIs for a longer tenure. Thus, you will be paying much more as interest to avoid EMIs that you cannot afford.

Savings and income tax payments

The higher home loan interest rates in India also minimize other expenses. Most of the borrowers are financially responsible citizens; who have several other financial commitments. People have previous commitments to SIPs, income tax ELSS, life insurance and general insurance premiums. In most cases, they need to continue making those payments since they are essential to their financial wellbeing. However, additional EMIs may affect these vital payments too.

This does not seem like a worrisome aspect though. In 99% of cases, it isn’t. You can discontinue SIPs and income tax ELSS too. You can stop the insurance premium payments too. But, you will need to make sure that your income tax returns are in order, with the income tax rebate on home loan repayments. However, any financial or medical challenge will pose a bigger threat if you don’t have an ongoing insurance cover. You will lose your savings, which are vital for similar circumstances. Hence, it is vital to understand how home loan rates can affect you during the entire repayment tenure.