Rising EMI burden to pinch elderly borrowers the most
By Priti Patnaik, TNN |
Highlights
NEW DELHI: With interest burdens on home loans increasing faster than you can say EMI, borrowers are left with little time to pay up mounting debt.
When the country���s largest private bank, ICICI Bank increased home loan rates on Tuesday evening by 1% interest, EMIs on a 20-year loan of Rs 10 lakh will go up by 6% from Rs 10,153 at a rate of 10.75% floating rate to Rs 10,838 at a rate of 11.75%.
Those of you inching towards retirement are suddenly faced with in-creased burden of rising interest rates distributed across shrinking re-payment periods. EMIs on a 20-year Rs 10 lakh loan jumped 40% to Rs 10,838 at a rate of 11.75% up from Rs 7,904 at a rate of 7.25% in 2005.
���There is a threshold beyond which housing finance companies or banks cannot extend the maturity of the loan. The pressure is on EMIs then,��� RV Verma, executive director, National Housing Bank, said. Already, EMIs are a function of repayment capacities, remainder of your working life.
While younger customers will have increasing EMIs as they go up the value chain, for older customers repayments will be structured the other way round, an official at HDFC said. In the last two years, banks have already raised interest rates on home loans six times. It is not uncommon for borrowers to throw up their hands in despair and stop paying additional increases in EMIs. It is this incipient delinquency that the finance ministry is worried about.
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At present, according to a rough estimate, instalments constitute 40% of the income of a typical salary earner. But has there been an increase in disposable incomes during this period? With early entrants into job markets, and a relatively younger group in the home loan market, stepped up incomes have been able to keep pace with rising EMIs. ���During this period, average incomes across various levels in the corporate sector has gone by almost 25% over the last one year alone after factoring in inflation. The increase has been more substantial since 2004,��� Ronesh Puri, managing director, of head-hunting firm Executive Access.
After RBI firmed up its repo rates to 7.5% last month, banks will factor in the hike in borrowing money and build it into the cost of the funds. Banks are increasingly unwilling to absorb long-term liabilities of over 20 years, because they are finding it expensive to borrow short-term and lend long-term.
Moreover, after RBI���s policy, banks will now set aside more capital for lending to property developers making loans to builders more expensive. As a result, this may make new homes more expensive. Despite, what the government���s diktat on home loan rate freeze for state-owned banks, it is only a matter of time, before others follow suit.
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