Rbi Keeps Repo Rate Unchanged: Here’s What It Means For Home Loan Borrowers

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Repo Rate

The Reserve Bank of India has very recently announced that the policy repo rate would remain unchanged at 5.15 percent. The borrowers may expect some relief in the coming months. Some banks have recently cut their 1-year MCLR (Marginal Cost of Funds based Lending Rate) on which the home loan interest is based. A lower MCLR will help borrowers to pay lower EMIs on their loans when their reset-period comes.

The impact of repo rate remaining unchanged does have an effect on home buyers. The real estate sector especially has been in particular benefitting from rate cuts which were transmitted to some extent through mortgage rates and repo linked loans to end consumers. By this move RBI’s eases out the rules for projects delayed for reasons beyond the control of promoters by one year will provide the much-needed elbow room for developers.

For external benchmark linked home loans

With key policy rates remaining unchanged, the EMIs on home loan won’t reduce unless banks reduce their margins (spread). Since February 2019, when RBI has announced reductions in repo rate five times in a row by a total of 135 basis points (100bps = 1%). Banks too have transferred the benefit of the rate cut to their home loan borrowers but not as much one would have expected.

For MCLR linked home loans

MCLR is determined by internal factors of every bank and RBI’s policy rates. Hence, it is always up to the banks to decide when to alter its MCLR. Also, the reduced MCLR will only be valid after the reset date of your loan arrives. The reset period of every MCLR-linked home loans is usually of six months or one year depending on the bank. By paying administrative charges, you can switch to an externally benchmarked lending regime from an MLCR service linked to the loan. However, before making the switch, please make sure that it is a well thought and well-compared decision. Checking the spread and risk premium levied would be advisable. Keep in mind that home loans under the external benchmark regime are highly volatile. The interest rates in case of external benchmark linked home loans are reset at least once in every three months.

MCLR-linked home loans apply only to those who had taken loans between April 1, 2016, and October 1, 2019, and they have a 12-month reset period hence any recent decision of the RBI may not have an immediate impact.

For new borrowThe Reserve Bank of India has very recently announced that the policy repo rate would remain unchanged at 5.15 percent. ers

New borrowers can avail home loans linked to an external benchmark. In the recent RBI Monetary policy, it has not changed, but any further reduction in the repo rate will reduce their loan EMIs.

If you have plans to avail a home loan, you can reduce the total cost by taking advantage of the interest subsidy offered under the PMAY- CLSS scheme or the Pradhan MantriAwaasYojana- Credit Linked Subsidy Scheme. The grants on the interest will be provided to all the first-time homebuyers based on their total household income and other eligibility criteria.

In case you are looking for a new home loan, there are two significant things that you need to know from the bank:

  • The bank’s RLLR or EBR
  • The actual spread or margin

The effective home loan interest rate will be very critical for you while drawing a comparison between the home loan rates with other banks.

If you are on an MCLR linked loan, you can either continue or switch to an RLLR home loan with the same or another bank. No matter, if it is an MCLR or RLLR home loan, always plan for prepayment of the entire loan as quickly as possible to save on the interest.