Two years ago, Arun DíSouza took a Rs 18.45 lakh home loan at a floating rate of 7.25 per cent. The loan tenure was 20 years and his equated monthly instalment (EMI) was a little over Rs 15,000. Interest rates have been creeping up since but DíSouza chose to pay the same EMI. The interest rate has since risen to 9.75 per cent. Last week, the marketing executive found out by accident while doing the paperwork for income tax that the loan tenure had swelled to 50 years!
If youíve taken a 20-year floating rate home loan in the past two years, wake up to the horror of being in debt for half a century.
Whatís spookier is that the home loan financier isnít obliged to tell you that your 20-year loan tenure has stretched by another 30 years. DíSouza, 40, will be close to 90 before he pays back about Rs 1 crore to clear the Rs 18 lakh plus loan.
The fine print in most loan documents states that the onus is on the borrower to keep abreast of rate hikes.
ďWhen I saw the statement, I was stunned. I thought they must have messed up the calculation. I asked them to re-check the statement. They told me it was correct: my loan tenure at the current rate of EMI would be 50 years,Ē says DíSouza, who has been so shaken by the turn of events that he even thought of selling his house to repay the loan.
An official with DíSouzaís home loan financier said customers arenít usually intimated if the loan tenure expands by a couple of years. ďBut if it goes up so drastically, a letter of intimation would have gone out. He probably didnít receive it.Ē
Are home loan borrowers staring at the prospect of being in perpetual debt' And what options do they have to get out of it'
DíSouza ó and others like him ó have five options. First, they could sell their flats and pay back the loans: second, they could shift to a fixed-rate loan; third, they could try and shop for a better interest rate from some other bank and pay back the first loan; fourth, they could renegotiate the EMI, and, finally, they could pay a lumpsum to the bank (about Rs 3.5 lakh in DíSouzaís case) and bring down the principal amount and peg the EMI at the existing level of just over Rs 15,000.
DíSouza has decided to raise his EMI by Rs 3,500 and put the loan tenure at 20 years. He has also decided to stick with a floating interest rate. Why'
ďMy banker told me that interest rates cannot continue to rise indefinitely. At some point, they must dip. Thatís when I will derive some benefits,Ē says DíSouza, more in hope than with conviction.