The Reserve Bank of India (RBI) has recently made headlines by cutting the repo rate by 50 basis points, bringing the total rate reduction over the past few months to 1%. This decision, made during a Monetary Policy Committee meeting, is set to influence home loan borrowers significantly, although the impact on Equated Monthly Installments (EMIs) may take some time to materialize.
As banks adjust their lending rates in response to the lower repo rate, it is anticipated that home loan borrowers could soon benefit from reduced EMIs. Currently, the interest rates on home loans hover around 8.5%; with the revised rate at 7.5%, borrowers could notice substantial savings. For instance, a borrower with a home loan of Rs 50 lakh over 20 years could see a reduction of approximately Rs 3,111.50 in monthly EMIs if they opt for variable rates. Alternatively, if they choose fixed EMIs, the loan tenure could shrink by three years.
Industry experts like Adhil Shetty, CEO of BankBazaar.com, highlight the positive outlook of this rate cut. He suggests that we might soon see home loan rates dip below 8%, a level that hasn’t been reachable since early 2022. The cut may particularly benefit prime borrowers with high credit scores, who are more likely to secure the lowest market rates.
However, the effectiveness of the transmission of this rate cut will depend on various factors, including the type of interest rate benchmarks used by lenders. Santosh Agarwal, CEO of Paisabazaar, noted that existing borrowers linked to the repo rate would experience the most immediate benefits, while those linked to MCLR or other internal benchmarks might face delays in seeing adjustments to their rates.
This repo rate reduction is expected to lead public sector banks to present attractive home loan offerings, which could translate into considerable savings for many borrowers. Atul Monga, CEO of BASIC Home Loan, encourages borrowers to thoroughly compare loan options to capitalize on the favorable economic environment.
Overall, the repo rate cut heralds a positive shift for many home loan borrowers, hinting at the potential for lower payments and reduced financial strain in the coming months. As banks adjust their rates, borrowers are urged to stay informed and consider refinancing options that may offer significant advantages.