When interest rates go up, lenders by default extend the tenure of floating rate loans. The consistent rise in interest rates in the past 15 months has more than doubled the tenures of long-term loans. A 20-year loan taken at 6.7% in April 2022 will now have to be repaid over 44 years.
20-year home loans are now nearly 44-year long
When rates go up, extending the tenure is the default response of lenders. Here is how a 20-year loan taken at 6.7% in April 2022 has been impacted.
The RBI has now set new rules for resetting floating rate loans. Lenders will have to be more transparent. At the time of sanctioning the loan, they must tell the borrowers about the possible impact of a change in benchmark interest rate on the loan, leading to changes in the EMI, or loan tenor, or both. Any subsequent increase in the EMI/tenor, or both, as a result of such changes, will have to be communicated to the borrower immediately through appropriate channels. More importantly, at the time of reset of interest rates, lenders will have to give an option to borrowers to switch over to a fixed rate, as per their Board-approved policy. Know the new reset rules and their possible impact on your loan.
