How to gear up to pay for real estate amid rising EMI interest - Details

The utmost utilisation of the real estate market is taking place because of the rising demand from citizens. The demand for real estate continues in full swing despite the two hikes in the repo rate interest by the RBI and shows no signs of decline.

India continues to be the fastest-growing major economies in the world, where the real estate sector is one of the largest employment generators that spur overall economic growth. Those who invest in real estate swear by the returns extended by the sector. Most investors who have parked funds in real estate in the country have seen handsome returns, owing to the rapid compounding in property prices over the last 10 years.

With the increasing income of the average Indian family, there has been a continuous increase in their desire to own a house as well, which has led to an increase in property prices in recent years. 

“There is a recent trend of people wanting to buy a home for themselves after the Covid pandemic leading to the rise in the real estate market almost all over the country but the repeated hikes in prime lending rates and inflation have reduced the affordability for many buyers,” said Rakesh Setia, President of Sales and Marketing, Rustomjee Group.

As lenders raise the interest rates, here's how you can manage the rising home loan EMIs:

It is always recommended that the home loan EMI should not be more than 50% of an individual’s income. As the interest is calculated on the outstanding principal amount, one should always think of making higher EMI payments that can help to repay the home loan quickly and will also save on the interest payments.

The interest rates on home loans are also on an upward trajectory. By transferring floating-rate home loans to fixed-rate home loans, a borrower can save a good amount in EMI and interest payments in the coming years. Later, when other economic factors like inflation and interest rates normalise, the borrowers will be able to avail another transfer and convert these fixed-rate loans into floating rates as per their convenience.

Ways to reduce the impact of high-interest rate:

Higher down payment: Making as large a down payment as you can reasonably afford, will decrease the amount of interest you'll pay over the life of the loan, lowering the monthly payments.

Partial pre-payment: This is an easy but an effective way to save down on your interest amount as the part-payment amount directly gets deducted from your Principal Outstanding payment.

Balance transfer: It allows you to reduce your EMI or interest rate by transferring your outstanding loan from one lender to another. This facility lets you take advantage of many lower interest rates available in the market.

Reduce your Loan Tenure: Before you sign up for a loan, choose the repayment tenure carefully so that you don’t have to end up paying higher interest against your loan.

Consider a long-term strategy: “While investing in a property, buyers should not only look at the appealing deals offered but also consider various aspects like the reputation of the developer and other important factors like the location, execution capability, and amenities that the developer has to offer. This will make the homebuying experience high-yielding and profitable ” Setia said.

So, to feed the growing population and the increasing purchasing power of its citizens, cities will keep growing with more and more attractive developments on offer for purchase. It is essential to make the right, confident, and secure financial decisions while buying a real estate property. A thorough research needs to be done before you decide which option is right for you.