Home loan EMIs to rise by Rs 6,000 cr

According to a report by Crisil, higher EMIs and slowdown in economic growth would also increase bad loans for lenders.Increase in equated monthly installments (EMIs) due to rising interest rates and reset of teaser loans will put additional annual burden of about Rs 6,000 crore on home loan borrowers.

In view of the persistently high inflation, RBI has hiked key policy rates 12 times in the past 18 months, leading to higher interest burden for home loan borrowers. The reference floating rate for the industry has increased by 200-250 bps during this period, which translates into an average increase of 15% in EMIs. Although banks and housing finance companies have reset their benchmark rates, the increase has not yet affected customers who have opted for teaser loan schemes, which were launched in early 2009 to stimulate dwindling home demand. For a teaser scheme customer, the rates are fixed for the initial 2-3 years, and subsequently get linked to the prevailing market rates.

According to the Crisil report, a large number of borrowers who are on teaser loans will get hit with a sudden jump in rates when the teaser rates reset to market rates. This shift is expected to take place from April 2012. "As of March 2011, teaser loans accounted for 25% of the housing loan portfolio of Rs 5,100 billion." the report said. The difference between the teaser rate and the reset rate is likely to be as high as 300-350 basis points (bps).