A Common question that is asked around the coffee machine these days is — should I prepay my home loan?

Most home loan borrowers in the last five years have taken floating rate loans and banks have increased interest rates on these loans three to four times in the last one year itself.

Many, who thought they were fortunate to have got a floating rate loan at 7% in 2003, are now finding that their sense of ‘luck’ was misplaced. Banks are now charging them around 11.50% interest rate.

Also Read: Banks Make Home a Distant Dream

If the loan was for Rs 10 lakh and the original tenure of the loan was 20 years, the increased rates would change the EMI from Rs 7,753 to more than Rs 10,000, or if one were to keep the EMI amount same, then the tenure would increase by more than 10 years.

Typically, banks would let the tenure increase to a maximum of 25 to 30 years.

What are your options?

One needs to work out the pros and cons under these exceptions before taking a final decision.