subject: Managing Your Emi Payments [print this page]

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The lure of low interest rates on home loans and affordable homes have rekindled the enthusiasm of homebuyers. With much of the economic recession behind us, things are looking up for the realty sector.

Suppose a borrower takes a home loan at a floating rate of interest. Unlike with a fixed rate loan, the interest rates can move in either direction. If the floating rates go down, the borrower will be benefited as his EMI outflow goes down. On the contrary, if the floating rates move in an upward direction, the borrower's EMI outflow will increase.

How does a borrower cope with increase in rates? What are the options before a borrower who is struggling to make EMI repayments every month?

Increasing the tenure of the loan could bring some immediate relief. However, the longer the tenure of the loan, greater is the associated cost of borrowing.

Try to pay off high interest rate debts first and refrain from taking fresh loans. Analyse how much debt you've accumulated and curb your spending habit

Move from floating to fixed rate if uncertainty of rate changes is stealing your peace of mind. However, when moving from floating to a fixed rate loan, the borrower is charged a conversion fee. Sometimes these fees and penalties could eat into your actual conversion benefits

Talk to the lender. Explore if he has any convenient repayment options that could bail you out of your financial crunch

Explore if you can make prepayments. In case you have some other savings, even a partial prepayment could greatly reduce your monthly EMI commitment. Some lenders charge a small penalty for prepaying

If you are paying a far higher rate than other borrowers, perhaps switching to another lender may not be a bad idea

Courtesy:- FT dt:- 20-12-2009

by: Raja Kaushar

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