searching for a new mortgage? You could now have to accept a reduced sum.

 searching for a new mortgage? You could now have to accept a reduced sum.

Things have just become more challenging for you if you are eager to move into your dream home this year and are considering taking out a home loan. The repo rate was raised to 6.50 % on February 8 either by Reserve Bank of India's (RBI) the Monetary Policy Committee.

Since August 2018, the repo rate has finally reached its highest point. Since the beginning of the rate tightening cycle in May 2022, the central bank has increased rates a total of 250 basis points. One hundredth of a percentage point is called a basis point. The repo rate was 4% a year ago.


In addition to high house loan interest rates, there is another issue. What Amount Can You Actually Borrow Right Now? This is due to the fact that banks provide mortgages based on a portion of your income that can be turned into Equated Monthly Installments (EMIs). The danger of non-repayment increases when the EMIs climb because a larger portion of your income is going towards the loan, which might be problematic.

"The hike in interest rates could lead to larger mortgage repayments, limiting the amount the borrower can afford," said Atul Monga, founder and CEO of Basic Home Loans.


Since the interest rate jumped by 0.25 percent, your qualifying for a home loan that would have cost Rs 57.82 lakh with a monthly income of Rs 1 lakh has been reduced to Rs 55.57 lakh when compared to an interest rate of 9%. It will cost Rs.


Why did the size of my loan decrease?

Since rates have increased, eligibility for home loans is impacted. Previously, if you qualified for a home loan with an EMI that was equivalent to 60% of your salary, you would receive a smaller loan amount since the Equal Monthly Installment, which was previously Rs 650 per lakh, has now increased to Rs 850 per lakh. Mortgageworld's founder and managing director is Vipul Patel.


The eligibility ratio is what?

The eligibility for house loans has been greatly impacted if the current increase in the overall rate from 6.7% to 9% is taken into account.

"Lenders take into account the liability to income ratio, which shouldn't exceed a certain threshold. For example, a bank might specify that the highest EMI for something or someone making Rs 40,000 should not be more than Rs 10,000 in order to ensure that the borrower will not have trouble repaying the loan. Arun Ramamurthy, Director, Andromeda Sales & Distribution, highlighted that as rates rise, EMIs rise and loan amounts decrease.

How much of a mortgage will the bank approve?

"Banks will only consider lending up to 70% of the agreement value going forward, if they haven't been lending more than 80% of the agreement value thus far. Therefore, if you were previously eligible for a loan of Rs 80 lakh for a house that costs Rs 1 crore, your eligibility will now be reduced to Rs 65–70 lakh as a result of the rate increase, according to Patel.

The maximum amount that can be diverted for loan repayment is capped internally by banks.

According to Monga, the highest percentage that can be converted into an EMI varies from bank to bank and is often between 50 and 60 percent.

Will it instantly impact new borrowers?

There are things you may take despite this rate adjustment to



If you have already submitted a loan application, you can ask for expedited processing to avoid being subject to the revised eligibility requirements.

The dissemination of the action can take some time. The cases that are now pending can move forward with greater merit. However, new cases will be reviewed at a lower eligibility level, according to Ramamurthy.

Each commercial bank has a varied reset period; some have an urgent reset, others follow a periodic reset, and some follow a quarterly reset. Consult your financier as a result.

As a result of having a quarterly reset provision, "selected banks and house financiers will wait until March 31, 2023, to restrict the loan eligibility," Patel added.

When the financial year comes to a conclusion, you must provide a letter from your company stating that your income will rise from Rs. 40,000 to Rs. 45,000 in order to convince the bank that you intend to do so.

How can I reduce impact?

If you intend to apply right away, raise the down payment from 15% to 20% to guarantee that the EMI is not impacted.

According to Alekh Yadav, director of investment products at Sanctum Wealth, "the borrower can delve into savings instead of accepting a bigger sum in the form of a home loan."

Alternately, choose to increase the loan's term from two to four years. Previously, banks could provide terms up to 25 years, but today they can offer terms up to 30 years.

"Adding a co-borrower to the loan is another way to avoid the qualifying penalty because the co-income borrower's would assist you balance the higher EMIs. Co-borrowers may be parents or spouses. Banks prefer a parent to be involved, nevertheless, if a sibling is involved. However, if the wife is the property owner, it is extremely simple to become a co-borrower, according to Ramamurthy. So far, we haven't encountered any restrictive tactics by house loan bankers.



Keep track of your credit score

Your liability includes not only the loan on your own property but also any loans on which you have agreed to serve as a guarantor.

"If you are a guarantor to a loan, then in event of default, the principal borrower's dues become your dues," Ramamurthy added.

So, if you want to apply for a home loan in the future, exercise caution while signing on as a guarantor.

With interest rates rising, banks and other financiers may be changing the rules even though you may have previously received a loan despite having a low credit score.

"These are not hopeful times," said Patel. "Many individuals are left with little money since the EMI load has shot up, real estate prices have tightened, and there is recessionary pressure."

Banks will be wary to extend credit to borrowers who pose a risk of default.

"In reaction to increasing interest rates, certain lenders may have stricter credit requirements and demand higher credit scores, longer employment histories, or greater down payments. This could further decrease some borrowers' eligibility for mortgage loans. Could.