How to prepare financially for a rise in mortgage interest rates in the future
For example, the EMI for a 20 year home loan of Rs 1 crore will be Rs 75,739 at 6.7%. The same will go up to Rs 81,787 at 7.7% and will rise to Rs 88,052 at 8.7%. The best thing to do in such situations is to go for fixed rate loans. However, the options are very limited and only a few options offer fixed rates also for a limited period. More importantly, these partially fixed rate home loans also charge higher interest rates.
Partially fixed loans will cost you more
Consider the additional costs before opting for partial fixed loans.
While these rate increases are not in your hands, you can prepare for them by assuming a higher interest rate. âInstead of the very low rates currently, assume a reasonable mortgage rate of around 8.5% and always invest the remaining EMI elsewhere,â says Aparna Ramachandra, Founder and Director of Rectifycredit.com. For example, the EMI for a 20 year home loan of Rs 1 crore is Rs 86,782 @ 8.5% and will be Rs 75,739 @ 6.7%. You should invest the difference of Rs 11,043 in a short term debt fund each month. This corpus will serve as a backup if prices go up. You will be in a better position even if the rate does not increase because this money will be put in savings instead of being spent.