On August 31st, the 6-month moratorium given by the Reserve Bank of India will end. This moratorium was initially given for 3 months on repayment of loans. It then got a second extension until 31st August 2020.
This moratorium gave a huge relief for customers that had lost their jobs and had to bear salary cuts. Due to loss of income, these people could not pay back their home loan EMIs. The lockdown affected both; the common man and also the whole country.
Can the common man bring down the interest on their loan interest rates?
For those who have no idea, the RBI has cut down repo rates by more than 200+ basis points. Home loan interest rates have dropped from 9% to 7%. But there are people who are still repaying their home loan at 9%. You can approach your bank and switch to a lower interest rate on your home loan. This is possible by paying a small conversion fee.
How much money will the common man save by doing this?
Here’s an example for you to understand:
Home loan amount – 30 lakhs
Loan tenure remaining – 15 years (180 months)
Interest rate – 8.5%
EMI amount – 29,540
Now, if you pay a conversion fee and reduce your interest rate to 7.4%, your new EMI amount will be (29540-1900) = 27,640. If you continue paying this new EMI, your home loan tenure will reduce from 180 months to 160 months i.e. 20 months less.
Are there any additional security steps that you can take?
As a common man in India, you must ensure to save money that can sustain your family for 6 months at least. It’s not a great idea right now, to begin with, fixed deposits and recurring deposits as these give very low returns. Instead, you can use this to repay your home loan EMI. Doing this will reduce your home loan EMI and also reduce your loan tenure.
If RBI extends the moratorium period, should you go for it?
We would like you to know that each month you opt for the moratorium, the interest part of your EMI will get added to the loan amount. Hence once the moratorium ends, you will have to repay a higher monthly EMI. Hence it’s advisable that you don’t avail of the moratorium facility if you can afford to repay your loan EMI.
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