The Reserve Bank of India (RBI) has issued a 50-basis points (bps) dip in the repo rate, freeing home loan borrowers from a weight. A reduced repo rate means lower interest rates, which directly impacts monthly EMIs and savings over the entire loan term. RBI Cuts Repo Rate and the impact on Home Loan EMI drop is explained.
The repo rate is the interest rate at which RBI lends money to commercial banks. When the repo rate decreases, the banks can borrow the money at cheaper rates, and thus, lend home loans at lower interest rates.
When will a repo rate cut impact your home loan EMIs?
This is how a repo rate cut will affect home loan borrowers:
· Reduced interest rates. Banks may pass along the advantages of cheaper borrowing costs to its customers.
· Lower EMIs. A lower interest rate leads to lower equated monthly installments (EMIs).
· Lower cost of borrowing. Newer borrowers will be able to avail home loans with much cheaper interest rates and have easier home ownership access.
Let us assume you have a home loan of ₹50 lakh at 8% over a loan tenure of 20 years. If the last sitting of the repo rate indicates a reduction of 50 bps (0.5%), this suggests the following:
Your monthly EMI will be decent enough lower. Hence, you will effectively save significant amount of money over the loan term.
What Should Borrowers Do?
Existing borrowers: Check with your bank if they are reducing your loan’s interest rate. Those on floating interest rates will automatically benefit, while fixed-rate borrowers may need to refinance their loans.
New borrowers: This is a great time to apply for a home loan, as interest rates are lower. Compare lenders to get the best possible deal.
Consider prepayment: With lower EMIs, borrowers can make partial prepayments to reduce the loan tenure and total interest cost.
The repo rate cut by RBI brings much-needed relief to home loan borrowers. Lower interest rates translate into affordable housing loans, reduced EMIs, and long-term financial savings. Whether you’re an existing or new borrower, this is a great opportunity to maximize financial benefits and secure a home at lower costs.
Existing borrowers: Speak to your bank about reducing your loan’s interest rate. Those with floating interest rates benefit by default, but fixed-rate borrowers may need to re-finance their loan.
New borrowers: This is one of the best times to apply for a home loan since lower interest rates are available. Compare lenders to receive the highest benefit.
Consider Prepayment: With lower EMIs, borrowers have the option to partially prepay and lessen their loan tenure and costs.
The repo rate cuts by RBI have provided a worthy and long awaited respite to home loan borrowers. Borrowers will now benefit from lower interest repayment while affording more than adequate housing loans, less EMIs to repay, and saving thousands of rupees in total interest cost over the longer loan period.
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