How you benefit
If the interest rates drop,your eligibility as a borrower increases marginally,depending on the percentage of reduction.Says Adhil Shetty,chief operating officer of Bankbazaar.com: While calculating the borrowing capacity of an individual,its typically considered that the EMI will be 40-50 % of the net take-home salary.So,if there is a substantial drop in the interest rate,his eligibility goes up. This is because the borrower will be able to afford a higher EMI or be more comfortably placed to pay the same amount of EMI.However,Shetty says that most banks pass on the benefit only to new loan borrowers.
If there is a drop of 50 basis points,the average borrowing capacity of an individual goes up by 60,000-70,000,which is not much.Of course,this differs from case to case,but banks consider various other factors before offering a low rate even to new borrowers, says Pankaj Maalde,head,financial planning,Apnapaisa.com. He also advises that the fall in rates shouldnt tempt you to prepay a loan.You will have to weigh whether the advantage of a lower EMI is higher than the prepayment penalty you may have to pay.
The article published in ET Wealth on 14th May'2012.
http://lite.epaper.timesofindia.com/getpage.aspx?pageid=39&pagesize=&edid=&edlabel=ETM&mydateHid=14-05-2012&pubname=&edname=&publabel=ET
If the interest rates drop,your eligibility as a borrower increases marginally,depending on the percentage of reduction.Says Adhil Shetty,chief operating officer of Bankbazaar.com: While calculating the borrowing capacity of an individual,its typically considered that the EMI will be 40-50 % of the net take-home salary.So,if there is a substantial drop in the interest rate,his eligibility goes up. This is because the borrower will be able to afford a higher EMI or be more comfortably placed to pay the same amount of EMI.However,Shetty says that most banks pass on the benefit only to new loan borrowers.
If there is a drop of 50 basis points,the average borrowing capacity of an individual goes up by 60,000-70,000,which is not much.Of course,this differs from case to case,but banks consider various other factors before offering a low rate even to new borrowers, says Pankaj Maalde,head,financial planning,Apnapaisa.com. He also advises that the fall in rates shouldnt tempt you to prepay a loan.You will have to weigh whether the advantage of a lower EMI is higher than the prepayment penalty you may have to pay.
The article published in ET Wealth on 14th May'2012.
http://lite.epaper.timesofindia.com/getpage.aspx?pageid=39&pagesize=&edid=&edlabel=ETM&mydateHid=14-05-2012&pubname=&edname=&publabel=ET
