Adjustable home loan repayment options
How Changes in Home Loan Interest Rates Affect You
Balancing your dream house and your financial commitment
Owning your dream home is a significant life goal, representing both personal comfort and a substantial financial commitment. Your home loan helps you turn that dream into reality, whether you are building a new home or renovating your current one.
Understanding Your EMI
In return for the financial support provided by your home loan, you commit to making Equated Monthly Installments (EMI). In simple terms, you pay back a portion of your loan every month. Home loans can span extended periods, up to 35 years.
But here’s an essential aspect to consider: your EMI might not remain constant throughout your financial journey. Why? Let’s break it down:
Factors Influencing Your EMI:
- Changes in Key Rate: This is the interest rate set by the Central Bank, previously known as the Key Repo Rate. When it goes up/down, your EMI might increase/decrease.
- Adjust your Payments: There are many ways you may proceed. For example, you can make partial repayments depending on your financial situation. This will allow you to reduce your loan amount and loan tenure.
Want to see how these factors could affect your EMI? Try our handy Loan Impact Calculator ->
Recent changes in Key Rate
In 2022, the Key Rate went up several times. As a result, financial institutions, including banks, raised interest rates on loans, overdrafts, and credit cards to adapt to the changes in Key Rate.
Amortization schedule - Floating v/s Fixed EMI
Disclaimers: The information, which you calculate from this simulator, is intended for use by you as a guide only; it is not an offer and has no legal effect. Bank One accepts no responsibility for any losses arising from any use of or reliance upon any calculations or conclusions reached using the calculator.
| Floating EMI | ||||||
|---|---|---|---|---|---|---|
| Months | Beginning | Payment | Total Interest | Principal | Ending Balance | Annual Rate |
| Fixed EMI | ||||||
|---|---|---|---|---|---|---|
| Months | Beginning | Payment | Total Interest | Principal | Ending Balance | Annual Rate |
Your repayment options
The choice of your repayment option significantly influences your mortgage journey. There are two primary types of repayment options:
- Floating
What Are They?
Floating repayment options adapt to interest rate changes, adjusting your monthly payments as and when the need arises.
Good News for You:
If you took a home loan with Bank One after December 15, 2022, adjustable repayment is already part of your contract. This means your monthly payments were already adjusted, and you will not have any residual payment to make at the end of your loan term. - Fixed
What Are They?
fixed repayment options maintain fixed monthly payments throughout the loan term, irrespective of Key Rate changes, which may result in a residual balance at the end of your loan.
Older loans:
If you got your loan before December 15, 2022, we highly recommend that you contact your Branch Manager or Relationship Manager. They can guide you on adjustable monthly repayments and other suitable options aligned with your financial situation, to avoid a residual balance at the end of the loan. Plus, feel free to use the calculator on this page to estimate how your home loan repayments might change and check if you will have a remaining balance.
Important note
Understanding how changes in interest rates can affect your home loan is crucial for managing your finances over the long term. Be prepared and make informed decisions about your home loan, especially in unpredictable times. If you are not sure about your loan terms or have questions, reach out to our friendly team. We are here to help you navigate your home loan journey.
Ready to get started? Use our comprehensive fixed/floating calculator now and take control of your home loan!
What's a Residual Amount/Balloon Payment?
A residual amount or balloon payment is a lump sum you might need to pay at the end of your loan term because of changes in interest rates during the tenure of your loan
What is EMI?
EMI stands for Equated Monthly Installment. It is the amount you pay each month to repay your home loan. This includes both the principal amount (the loan amount) and the interest charged on it.
Can I Change My EMI Amount?
Depending on your financial situation, you may be able to adjust your EMI amount. We invite you to contact your Branch manager or Relationship Manager to explore the various possible scenarios.
What is the Key Rate?
The Key Rate, formally known as the Key Repo Rate, is the interest rate set by the Central Bank. It serves as a benchmark for various financial transactions and influences the interest rates (such as the Key Savings Rate or the Prime Lending Rate) offered by banks and other financial institutions.
How does the Key Rate affect my home loan?
The Key Rate has a direct impact on the interest rate of your home loan. When the Key Rate goes up, the interest rate on your loan may increase, which can lead to higher Equated Monthly Installments (EMI). Conversely, when the Key Rate goes down, your loan’s interest rate may decrease, potentially resulting in lower EMIs. If you have a fixed prepayment option, a rate increase could result in an outstanding balance remaining at the end of your loan. Conversely, if the rate decreases, you might be able to pay off your loan before its scheduled end date.
Why does the Key Rate change?
The Key Rate changes in response to economic conditions and the Central Bank’s monetary policy. It may be adjusted to control inflation, stimulate economic growth, or respond to external economic factors.
How often does the Key Rate change?
The frequency of Key Rate changes can vary depending on economic conditions and the Central Bank’s policies. It may change periodically, but there is no fixed schedule for adjustments.
Can I predict Key Rate changes?
Predicting Key Rate changes accurately can be challenging because it depends on complex economic factors and central bank decisions. Financial experts and analysts closely monitor economic indicators and central bank announcements to make informed predictions.
What should I do if the Key Rate increases?
If the Key Rate increases and you have a floating repayment option on your home loan, your EMI may go up. To prepare for this, consider reviewing your budget and financial situation. If the Key Rate increases and you have opted for a fixed repayment plan for your home loan, your EMI remains constant. However, this may result in a residual amount that needs to be settled at the end of your loan term since a significant portion of your EMI is allocated towards interest, leaving the principal balance uncleared as initially planned.
We strongly recommend engaging with your Branch Manager or Relationship Manager to explore the possibility of switching to a floating repayment option, which can help eliminate the residual amount by adjusting your payments in line with interest rate fluctuations. Additionally, you may consider alternative strategies such as making partial payments or loan adjustments to effectively manage the financial impact of an increased Key Rate.
Is there any benefit to choosing a floating repayment option linked to the Key Rate?
Yes, opting for a floating repayment option is highly recommended. When the Key Rate decreases, your interest rate and EMI will decrease, potentially resulting in long-term cost savings. Conversely, an increase in interest rates could leave an outstanding balance at the loan’s conclusion for fixed prepayment option holders. Therefore, selecting a floating repayment option provides greater flexibility and financial advantages.
Please note that the FAQs provided here are for general informational purposes, and specific terms and conditions may vary. Talk to us for personalized guidance related to your home loan and the Key Rate.
