Home loan borrowers opt for pre-payments, amid rate hikes

“There is an increase in part pre-payments or pre-payment of dues, and transfer of home loans compared with H1 FY23. People from the high income and metro segments that buy houses for investment and other purposes, are certainly evaluating such opportunities,” said HT Solanki, General Manager of mortgages and other retail assets at Bank of Baroda.

Further, because the loan ticket size in metros is usually higher, even a small rate change can translate to a significant amount in absolute terms, encouraging borrowers to try and pay as much upfront or look at other lenders that offer better rates, industry participants said.

It is also more beneficial for borrowers to deploy their surplus funds to repay debt obligations rather than invest, as most investment and savings returns continue to be sub-par compared with home loan rates, a participant said. They added that this also includes investors who may have booked profits when markets peaked and are now choosing to ‘sit on cash’.

Since May, RBI has increased the repo rate by 225 bps to reign in elevated inflation. The comparative increase in lending rates has been slower as lenders have so far chosen to absorb some of the impact or raise rates in a staggered manner.