RBI increases repo rate by 25 bps to 6.50 percent, Here's the math behind it

RBI has recently increased the repo rate for the sixth time in a row. The repo rate was 4 percent in April last year, now it is 6.50 percent. By banks this burden has started to be put on the consumers. Due to this, especially the home loan installments have gone up a lot and people's budgets have been disrupted.

When home loans were cheap, people took advantage of this and bought a house or property. Now many people are finding it difficult to pay the installments after the increased interest rates. Late payment of installments affects your CIBIL score. 

Because of this banks Penalty levies a penalty in the form of interest, which is one to two percent of the EMI. Due to frequent late payment, recovery agents also start harassing. Here we tell you about the methods by which you can reduce your debt burden.

If you have extra income from anywhere, that amount can be used to pre-pay the loan. This will help you shorten the loan tenure. In the case of a larger loan such as a home loan, prepayments in the early years significantly shorten your loan term.

With loan prepayment, you can shorten the tenure of that loan or reduce its EMI amount. You can make the right decision according to your financial status. When you make a prepayment, this amount is deducted directly from the principal amount. This reduces your monthly installment. Prepayment at the initial stage of the loan reduces the EMI and also saves on interest. This is why it is considered as the best option.

If you want to pay off your monthly installments sooner, you can increase the EMI amount for this. You can easily increase the EMI amount by making proper use of salary hike or bonus etc. This will help you get rid of the burden of monthly installments sooner. People who are financially capable can opt for increasing their EMIs.

If you choose this option, it will increase your monthly installment. But your principal amount will be less and the total interest you pay on the loan will also be less. This will clear your loan faster. An option to increase the EMI is to make small pre-payments.

As the home loan installment increases, the monthly expenses start to be affected. This can ruin your budget. If you don't have extra income or savings, you can extend the term of your loan and lower the installments. But in this option you have to pay more amount in interest in long run. Suppose you take a loan of Rs 25 lakh for 15 years at an interest rate of 8.75 per annum. 

In this case, your installment will be Rs 24,986 and you will have to pay interest of Rs 19,97,518 over the entire period. On the other hand, if you extend the loan tenure to 25 years, the installment comes down to Rs 20,554. But, you will have to pay interest of Rs.36,66,076 for the duration of the loan.

By the way, there is not much difference in the home loan rates of all the banks at this time. But many times it happens that the rate of the bank from which you have taken home loan is slightly higher than the other bank. In such a case, you can transfer the loan elsewhere.

If you transfer a loan with a low interest rate of 0.50 percent, you will have to pay less installments with lower interest. Suppose you have taken a loan of Rs 25 lakh from a bank for 20 years at 8.50%. In this case, your installment will be Rs 21,696 and you will have to pay interest of Rs 27,06,939 during the loan tenure.