Repayment tenures shoot past 20-year mark

One in three home loan borrowers have either witnessed a 25 per cent rise in their equated monthly installments (EMIs) or their loan tenures extending beyond 20 years over the past one year.

With the default rate on housing loans already as high as 3.5 per cent, banks are offering to increase the tenure of loan repayment up to 25 years for customers who are uncomfortable with the substantial increase in EMIs.

On the back of rising home loan rates, the repayment periods of about 25 per cent of mortgage borrowers of ICICI Bank, the country's largest home loan provider, is shooting past the 20-year mark.

Since January 2006, home loan rates have gone up to 400 basis points. Most of the customers affected are those who have borrowed in the last 2-3 years. Analysts said the increase in borrowers' salaries over the last one year has failed to keep pace with the rise in EMIs.

When questioned about the number of mortgage account holders whose repayment period has extended beyond 20 years, Sunil Rohokale, head, mortgages and real estate, ICICI Bank, said, "We expect it to be in the range of 20-25 per cent of the total number of customers with reference to the latest change in interest rates."

Public sector banks, which had been allowing repayment up to 20 years are also encouraging borrowers to reschedule their loan tenures.

"As the market heats up, there is some risk element attached to it. There may be some defaults here and there. Banks will have to take a calculated risk in rescheduling repayment," said the chairman and managing director of a public sector bank, who didn't want to be identified.

Punjab National Bank Chief General Manager US Bhargava said, "Wherever there has been a good increase in salary, people have opted for higher EMIs. We also have the provision to allow repayment up to 25 years. In the last one year, due to rising interest rates, borrowers who opted for 15-20 year loans are prolonging their repayment periods without increasing their EMIs."

The average maturity on home loans is 10-15 years. Banks have the discretion to extend repayment tenure by 5-10 years. However, for most banks, repayments have to be completed before the borrower's retirement or 65 years of age.

In such cases, borrowers are expected to service higher EMIs through retirement benefits. The default rate on housing loans portfolio stands at 3.5 per cent for several banks as against 1-1.5 per cent two years ago.

Home loans have grown by around 33 per cent in the last two years and the total outstanding at the end of December 2006 was around Rs 2,10,000 crore.