RBI hikes interest rates; Know how to reduce your EMI burden
Mumbai: reserve Bank of India ( RBI ) has increased the repo rate by 0.50 percent on August 5. Those paying EMI will get to see the effect of this decision in their budget every month. What should an investor do in such a situation? How to reduce EMI burden every month? Optima Money MD Pankaj Mathpal and Sebi Registered Investment Advisor Jitendra Solanki guide in this regard.
increase of 50 basis points
RBI has increased the repo rate. from May
0.50% hike in interest rates
Repo rate hiked from 4.9% to 5.40%
How much does a home loan cost in 2 months? (home loan)
Loan: ₹25 Lakh Tenure: 20 Years
4 in East 6.50% ₹18,639
New Rate 8.10% ₹20,167
Increased EMI- ₹1528
How could the rate hike affect you?
– All types of loans will be there
Expensive – Repo Rate Linked Loan Rates
Will increase- EMI on home loan, car loan will increase-
Home loan tenure or EMI will increase- EMI
The increase in the current savings will reduce
Should EMI be increased or its tenure?
– Increase in bank lending rate will increase the tenure of banks
Increase in loan tenure will lead to additional interest burden
You can ask the bank to increase the EMI amount
– Increased EMI can be paid over a fixed period – By increasing EMI
savings will be affected
– Pay EMIs with additional savings, increase EMIs if you can
Increased Rates – What Should Consumers Do?
– Recommend the bank to reduce the loan rate
Transfer the remaining loan amount to another bank
– Can choose floating rate option
– Prepayment option to avoid additional interest
Loan can be repaid after getting lump sum
Should I use the prepayment option?
– To avoid additional interest, 2 options can be used
Is – No change in EMI, Change in repayment tenure – EMI
No change in tenure
EMI can be reduced by making more prepayments
How to prepay?
– Can also make systematic installment payments every month
You can prepay if the amount is more than the expenses.
– Bonus can be used for prepayment of loan
– Floating rate or fixed rate loan, remember this
Bad budget, how to organize?
– Additional EMI may affect savings
– Make a plan to fix the broken budget – Cut expenses
Make a list of essential expenses
– Add investment amount to EMI for less important goals
– After getting the lump sum, keep repaying the loan
Where to invest in debt?
– Invest in Banking & PSU Bonds – Banking & PSUs
Low credit risk in –
Better Tax Returns in Banking and PSUs as compared to FDs
You can also invest in Dynamic Bond Funds
– Invest in corporate bonds –
Invest in short duration funds for short duration
Money market funds are best for short term
Where to invest in Equity?
Emphasis on long term investment
Keep investing in the market for a short period of time
Best option to invest in large cap funds
– Mid and small caps have more volatility