Home loans to become cheaper after RBI cuts Repo rate

The people who are having existing home loans now have something to feel happy about. The Reserve Bank of India (RBI) in its second bi-monthly monetary policy report has declared to reduce the repo rate by 25 basis point.The current repo rate stands at 5.75 per cent. This decision has been taken by the Monetary Policy Committee (MPC) before this declaration, the RBI had already reduced rates by 50 basis points in the fiscal year 2019 and after taking today’s rate cut into consideration, the repo rate is totally reduced by 75 basis points since January 2019.

This decision was taken by a six-members  MPC committee headed by Shaktikanta Das.

What does Repo rate mean?

Repo rate in layman’s terms can be defined as RBI’s rate of interest to banks.If the Repo rate is reduced, the cost reduces for banks as well. Therefore, with reduction of Repo rate, financial institutions can also consider to reduce their own marginal cost of funds based lending rate (MCLR). By MCLR, we refer to the rate of interests by which the banks give home loans or car loans to common people.

To make things more easier, take for example home loan of around 25 lakhs for a 10-year period. According to the interest rates offered by SBI which is 8.55%, then the monthly EMI could be around 31,332/- monthly. Now if due to the repo rate reduction of banks, SBI too reduces the rate of interest to say 8.50% then the home loan comes to 30,996/-.Although it doesn’t seem like much, but it can bring the total savings on your EMI to 40,220/-.This could be a deal of great benefit to the loan takers and the people who are paying existing home loans

How to get benefitted by this opportunity

For the borrowers looking for new home loans, they can now start looking out for home loan opportunities with the banks. But a word of caution is not to take into consideration bank’s MCLR merely but also have knowledge about the actual home loan rate of the bank, so that they could consider the banks best home loan option. Bank’s have the authority to levy a Mark-Up on the MCLR before final loans are disbursed. However, it is prudent to do a pre-payment so that the home loans are paid as soon as possible and you can claim the home as 100% your own.

The positive impact of Repo Rate Reduction

The latest change in this monetary policy by the RBI will be a great opportunityand also breather to the  real estate sector which was fighting high price issues.The real estate sector still struggles with a financial crisis like liquidity along with other problems like late delivery of housing projects and the increasing rateof inventory.

But existing home loan customers have to give a few days to understand the impact of the decision on the home loan. It will take a year for the home loans to go down as a effect of this decision for existing home owners.

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