DECREASE IN REPO RATE: MORE SAVINGS ON HOME LOAN
With the decision of reducing the repo rate has provided a lot relief to investors who are planning to invest more in property business as well as for home loan seekers. It has been lowest of last four years and can easily help in economic growth of the country with help of low inflation.
To simplify, home loans will get cheaper and loan eligibility will increase for borrowers creating a super borrowing environment specially for retail customers. The retail credit sector is going to hike up and demands for personal loans as well as mortgages will boost up.
It makes a perfect time for now to buy a home or pic a mortgage. It now remains to be seen how the banks react and when they start reducing their lending rates. Banks are expected to pass on the rate cut benefits to their customers by offering home and vehicle loans at cheaper rates. The EMIs — equated monthly instalments – of existing customers are also likely to come down.
Since January 2015, the RBI has cut the repo rate by 1.50 per cent and banks have reduced their lending rates by about 0.5 percent.
Along with the unexpected rate cut, analysts feel, a massive pay out for government employees will leave extra cash in people’s pocket at the beginning of the festive season.
To give you an idea, on a 10-year home loan of Rs 50 Lacs, your EMIs will go down just by Rs 175 per month, factoring in the 5 basis points rate cut. Over the entire tenure of 10 years, the savings will be equivalent to around Rs 36,000. Moreover, experts say that EMIs of the existing borrowers may not go down immediately, while a new borrower can enjoy loans at the reduced rate
Currently, banks follow the marginal cost of lending rates mechanism to decide the interest rates on floating-rate loans while earlier it was decided on the basis of base rates. Under MCLR mechanism, banks lend on the basis of incremental cost of funds and the MCLR rates are reviewed on a monthly basis. This new rule came into effect in April this year. For those who borrowed before April 1, the interest rate will depend on the base rate of the banks. They can also shift to the MCLR mechanism by paying small fees.
Options for existing home loan borrowers
• Reduce tenure
• Switch over
Do keep an eye on the total interest saved, whether you transfer your loan to another bank or reduce your loan monthly instalment. If your current loan is going to complete in some near by period, then in this case the effect of repo rate won’t be much for your loan and it will be better not to transfer the same. If your existing loan is on around three and more years old then you should plan to switch your loan to another bank or company or refinancing the same. But do consider the offers given to you as if the difference is very marginal then continue with the same lender itself.