Mumbai: The Sharmas had taken a home loan three years ago at a floating interest rate of 8 per cent. With rates at 12 per cent now, their careful financial planning has taken a hit.

"If interest rates keep rising like this then how are we going to cope up?" home loan borrower, Rajiv Sharma asks.

Most of India's three million home loan borrowers find themselves in a similar predicament. They say the ideal thing to do in this scenario is to prepay the loan.

If you don't have ready cash, they suggest liquidating debt instruments like bank fixed deposits or bonds.

Increasing the loan tenure to keep the monthly installment constant is not a good idea and should be used as a last resort.

"If you increase the tenure you end up paying a lot more interest for the same amount of loan," financial planner Gaurav Mashruwala said.

Meanwhile, experts recommend floating rates for new and existing customers. They say floating rates are cheaper and the borrower has the option of switching to fixed rates at any time but they don't advise the switch.

The 2 per cent penalty charged by banks and higher fixed rates make it unattractive. Existing borrowers, compelled to take a hike in EMIs as the tenure exceeds their retirement age, can look at adding a younger co-borrower.

The co-borrowers age and income would help keep both EMI and tenure intact. But experts feel to avoid heavy burden of rising rates it is best to pay a large part of your home cost upfront and take minimum home loan possible.

(With inputs from Ravinder Arora)