- Hike in the repo rate by 25 basis points
- Consequent hike in lenders’ interest rates
- Consider refinance options to lower interest outgo
- Switch to the MCLR regime from base rate
The repo rate has been hiked by 25 basis points taking the current rate to 6.50%. For those uninitiated to finance, repo rate is the rate at which RBI lends money to other banks. Reverse repo is the rate at which other banks lend money to RBI.
In line with the RBI decision, most lenders are gearing up to hike their interest rates. This is going to have a direct impact on existing borrowers and prospective borrowers. Your Home Loans are going to get dearer.
In case you are an existing Home Loan borrower, and wish to find out the new EMI amount, the Housing Loan EMI calculator is a handy tool. This tool will give you the exact amount of EMI that you need to pay at the new interest rate. If you are on the lookout for a Home Loan to finance your new home, you can check your Home Loan eligibility online.
The Impact of the REPO Rate Hike on your EMI
The hike in repo rate has a direct bearing on your EMI. When RBI increases the repo rate, all banks are compelled to increase their marginal cost based lending rate (MCLR). As per the RBI mandate, all loans that are disbursed after the 1st of April, 2016 should be linked to the MCLR. There has been a total of 50 bps hike in the repo rate over the last two MPC meetings.
Consequently, the interest rates on all loans, including Home Loans are likely to go up.
How does It Impact Prospective Borrowers?
If you are planning to avail a Home Loan to buy a new home, now is the time to act. Lenders are expected to further increase their Home Loan interest rates and will continue to do so. Compare the Housing Loan rates offered by different lenders before you decide on the loan provider.
How does It Impact Existing Borrowers?
- If your Home Loan Interest Rate is Linked to MCLR
If your Home Loan is linked to MCLR, the EMIs are poised for a hike, in line with the bank interest rate. However, the new, increased interest rate will be applied only on the next reset date. Until then, you can continue to enjoy the existing interest rate. After the reset date, if your interest rate goes up, you can check out the interest rates offered by lenders. If other lenders are offering a lower interest rate, you could consider the Home Loan balance transfer option and transfer your outstanding Home Loan amount to another lender at a lower interest rate.
- If your Home Loan Interest Rate is Linked to the Base Rate
If your Home Loan is linked to base rate, there is every possibility that your Home Loan interest rate will be hiked. It is recommended that you switch your loan to the MCLR regime. According to financial experts, MCLR is a better mechanism to fix rates and offers greater transparency. Under the MCLR regime rate changes are better transmitted to existing borrowers.