EMIs on home loans to remain unchanged as RBI maintains status quo on repo rate

 The Reserve Bank of India (RBI) convened its bi-monthly Monetary Policy Committee meeting on December 8, 2021, and retained the repo rate at 4%.

The policy rate remains unchanged, which is good news for individuals paying EMIs on home and car loans because they will continue to pay the same rate of interest as before.

This relief, however, may be limited to individuals who pay EMIs on house loans that are linked to the bank's Repo Linked Lending Rate (RLLR). Borrowers who pay EMIs on house loans based on the bank's Marginal Cost of Funds based Lending Rate (MCLR) may still experience a change in their EMI the following month.

"The RBI's decision to maintain the repo rate will undoubtedly auger well for all interest-sensitive sectors in the New Year, when the economy is on the mend." "Homebuyers should take advantage of the current situation because there is a risk that prices would rise later due to reduced supply and the pressure of rising raw material costs," says Ramani Sastri, Chairman and MD of Sterling Developers Pvt. Ltd.

The cheap interest rate environment may also help the real estate investor industry. "It's a terrific moment to invest for any investor, and it's a good time to buy for the end-customer." People are looking for their own homes and purchasing second homes in the wake of the pandemic because they would have a secure and safe home that would also be a good alternative to their primary residence," says Lindsay Bernard Rodrigues, CEO and Co-Founder of The Bennet and Bernard Company, which specialises in luxury vacation homes in Goa.

Even if the RBI does not change the repo rate, borrowers who pay EMIs based on the MCLR may experience a change in their monthly payments when their reset date arrives. If you have a loan with a Marginal Cost of Funds based Lending Rate (MCLR), a drop in the MCLR will allow you to pay reduced EMIs on your loan when your reset period comes around.

Since October 1, 2019, the RBI has required banks to offer retail loans, like as home and vehicle loans, that are tied to an external benchmark, most commonly the RBI repo rate. When the RBI changes the repo rate, the change in the interest rate in RLLR is more faster for the borrower than in MCLR-linked loans. From April 2016, the MCLR (Marginal Cost of Funds-based Lending Rate) was implemented. The MCLR is dependent on the bank's own cost of funds, among other things.

Most banks base their new home loans on their Repo Linked Lending Rate (RLLR), often known as an external benchmark rate (EBR). Banks, on the other hand, may not give loans based on their RLLR, but the effective rate may vary depending on the loan size and other conditions.

Most banks are already giving home loans with interest rates as low as 6.5 percent or even lower, depending on the loan size, career, gender, and other factors. The interest rate climate appears to be favourable for consumers seeking a home loan to purchase a property. SBI, LIC Housing Finance, Bank of Baroda, ICICI and HDFC, Kotak Mahindra Bank, and others are some of the banks that a new borrower could look at for the best house loan interest rate.

Switching Options

Existing borrowers who took a loan before October 1, 2019, may keep their loans tied to the Marginal Cost of Funds based Lending Rate (MCLR) rather than switching to the Repo Linked Lending Rate (RLLR). It is possible to convert MCLR loans to RLLR, but this should be done after a thorough cost-benefit analysis. This may come at a cost, so think about the loan's remaining term before proceeding. Before making the changeover, one should wait a few months to gain a good image of interest rate movement.

Choose lender with lower rate

Choose a lender that offers a cheap interest rate based on your financial situation. Depending on the remaining term of the loan, even a 100 basis point reduction can save you a few lakh in interest costs. In the case of a home loan of Rs 40 lakh for 15 years, the EMI and interest savings (based on a 200 basis point lower rate) will be:

EMI Saved – Rs 4758 ( Annually Rs 57,000)

Total interest saved – Rs 8.5 lakh

Prepaying principal at regular intervals is another strategy to keep the interest cost low. Prepaying every six months or once a year is preferable because the outstanding principle amount is reduced considerably sooner. Any such prepayments should ideally be made early in the loan's life cycle, as interest costs are higher in the first few years. You can use a home loan repayment calculator to figure out how much money you'll save.

What to do as a borrower

New borrowers should contact at least two lenders and request the effective home loan interest rate depending on their loan size and term. Borrowers paying EMI on loans tied to the RLLR will be impacted significantly faster than those paying EMI on loans connected to the MCLR if the repo rate rises. As a result, whether you have an MCLR or RLLR house loan, keep a prepayment plan on hand to pay off the loan as quickly as feasible. The lesser your interest burden will be the sooner you repay the loan.

Conclusion

There's no need to be discouraged if your personal loan application is turned down. To boost your chances of loan approval, simply work on improving your credit report and following the methods outlined above. Once you've completed this checklist, you're ready to submit your personal loan application.To find about the best pricing and deals, call our toll-free number +91-9477079053. They'll help you in every way they can. Please contact me at Best Home Loan In India if you have any more.


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