Loan-seekers undergo a lot of grinding when it comes to the stability in paying the Equated Monthly Instalment (EMI). The burden of revised repo rates has to be borne by new-loan applicants to stabilise global inflation. After the recent hike in the repo rate revealed by the RBI (Reserve Bank of India), there is a lot of buzz between banks and customers for guidance on the stability of the common man’s pocket. For those who already have raised a loan in exchange for their dream asset, they are barely saved. But those looking for a home loan prospect would need a good range of guidance for a stable loan period.
The repurchasing option rate or commonly known as the repo rate is understood as the interest rate at which the RBI lends money to private banks and national banks in case of fund shortage. Any shift in the rate of interest impacts the end-users who pay EMI.
How does the shift in repo rate impact the home loan buyers?
The repurchasing option rate directly impacts the homebuyers who have chosen the floating rate of interest on their loans. The interest fluctuates as per the market forces. The floating rates of interest are the bare minimum which banks and financial institutions do not lend money.
The fluctuation in the repo rate does not impact the applicants who have loans sanctioned at a fixed rate of interest. As a result, Rbi cuts down the repo rate to encourage spending by the people. Consequently reducing the EMI.
To control the impact of the Ukraine-Russia crisis, RBI decided to spike the repo rate. Let us understand better, what impact will the repo rate have on your home loan.
Home Loan EMI’s
To understand the impact of the hike in repo rate on home loans, we need to decode the existing functionality of the fixed rate interest on the loans issued before May 2022.
If you are paying EMI to a nationalized bank
For instance, you have raised a loan of Rs 20,00,000 from the Bank of India. The loan has a tenure of 20 years at 6.9 per cent ROI. The EMI comes to Rs 12,333 approximately. But after the revision of the repo rate to 7.4 per cent, you will have to pay an EMI of Rs 20,666 approximately. Please be informed that the revision of the repo rate will not impact the loans sanctioned before May 2022.
If you are paying EMI to a private bank
For instance, you have raised a loan of Rs. 20,00,000 from ICICI Bank. The loan has a tenure of 20 years at 8.1 per cent. The EMI comes out to Rs. 21,833 approximately. But after the revision of the repo rate by the Reserve Bank of India to 8.6 per cent, new loan applicants will have to churn out an EMI of Rs. 22,666 approximately.
Straight from the horse’s mouth…
Experts have rolled out some money-management mantras that would put aside the burden of the end user. Amidst some jolts, nodding towards the minuscule impact of the repo rate on the EMI is still low than the pre-COVID times.
According to Ramesh Nair, CEO, India and MD, Market Development, Asia, Colliers, the Indian economy is strongly placed on the path to recovery. The GDP growth is pegged at 7.2 per cent for FY 2022-23. He also gave an insight that this scenario translates into a minimal increase in repo rate in the last one month. He stated that this is an opportune time for homebuyers to take advantage of the prevailing home loan rates as genuine homebuyers unaffected by the marginal increase would continue their purchases, which will further push the prices upwards in most of the markets.
According to Shraddha Kedia-Agarwal, Director, Transcon Developers, avers, the recent announcement by the Reserve Bank of India on increasing the repo rate by 50 bps, bringing them to 4.90 per cent, will affect the real estate sector to an extent. Banks will increase the home loan rates to pass it on to consumers. She stated that the real estate industry was expecting this move to tackle the tight inflation in the country. However, the preference for home ownership and strong wage growth will continue to support the housing market.
Is there some relief for the end-user?
Start paying in advance…
Experts say end-users should try to pay a lump-sum amount in advance of the scheduled EMI. This will help them relieve the burden of inflation. Those who are Ok with prolonged EMIs should look for extending them so that the ongoing jerks can be dealt with relief. Methods like EMI set-ups can help end-users relieve the interest burden.
You are recommended to consult real estate experts or agents like The Heena Realty Makers in Gurugram. They are experts in trusted advisory for real estate options and home loans.
Remedy to save interest cost
Many existing home loan borrowers have witnessed substantial improvement in their credit profile due to the improvements in their credit score, occupation or income profile after availing home loan. Such borrowers should explore the possibility of interest cost savings through home loan balance transfers. Their improved credit profile may make them eligible for home loans at much lower rates than other lenders, quoted by an expert.
Park your surplus money…
Home loan applicants having limited liquidity can choose the home saver option. In this option, an overdraft account is opened where a borrower can park his surpluses and withdraw from them as per his financial requirements. The interest component of the loan is calculated after deducting the surpluses parked in the account from the outstanding home loan amount.
Home loans will be in constant demand as work from home is largely practised now. As companies are converting into hybrid models of work, there will be a surge in home loan applications. With perfect guidance from certified experts at The Heena Realty Makers, Gurugram.
