Home Loan Borrowers have a big reason to cheer! The reserve bank of India (RBI) has cut the repo rate by 25 Basis points – the second time in this calendar year. The repo rate now stands at 6%, down from 6.5% at the start of this year.
How does the repo rate impact loan borrowers? The logic is simple – repo rate is the rate at which the RBI lends money to the banks. When the cost of borrowing come down for banks, the aim of the central bank is that it would be passed on to the loan borrows in the form of lower lending rates. So a 50 Basis points repo rate cut should be ideally meant that the interest rate on your loans would come down by half a percentage point.
However, the actual transmission of rate cuts works with a lag, and it usually takes a few months for loan borrowers to
Repo Rate Cut: What will be the impact on your EMI?
Adhil Shetty, CEO, Bankbazaar.com Notes That Home Loan Rates are about to go sub-eighted again with today’s 25 Basis points rate cut. The lowest rates we’re currently seeing are betteren 8.10 and 8.35, he says.
So how much money will you save?
- As per calculations in the table Above, if the Interest Rate Coms down from 8.5% to 8% (two culture repo rates of 25 bps my Interest Savings would be Rs 75,320/-
- For a Rs 50 lakh loan the EMI SAVINGS BOLD BE AROND RS 2,354 And the Total Interest Savings Would Be Rs 564,897/-
Source: Basic Home Loan
However, Shetty Points Out that Lowest Rates are typically reserved for prime borrowers (Credit Score> 750) and refinance cases.
“Homeowners Paying A Substantily Higher Rate (50 BPS or Higher Above Prevalent Rates) Are Advised to refinance their loans to avail lower rates. Awailable only on repo-linked home loans offered by banks, “He says.
“Despite Six Years of Repo-Linking, We see that only 50% of Floating Rate Loans with Government Banks are Still Linked To The McLr and 2% to Base Rate. Their Older Loan Benchmark and Consider a refinance to a repo-linked home loan if it help them them save interest outflows, ”He adds.
Atl Monga – CEO & Co -Founder, Basic Home Loan Says that the actual benefit to consumers will depend on how quickly financial institutions pass on these rate cuts. “It’s crucial for banks to transmit these benefits promptly to ensure that intended economy stimulation reactions the End-READERS the End-Eusers Effectively,” He Says.
Home Loan Emis: Important Points to Note
- Santosh Agarwal, CEO, Paisabazaar Points Out that Transmission of this repo rate cut bee faster in case of floating rate loans linked to repo rate. However, the exact date of transmission of rate cuts to the existing borrs would depend on the reset dates of their interested rates set by their respective lenders. Till then, they will continue to repay their loans as per the existing rates.
- In case of loans linked to mcLr or other internal Benchmarks, transmission may take longer as the cost of funds of the banks plays a Major Role in Determining Their Internal Benchmark Rates.
- The Reduction in the Repo Rate, Backed by the Favorable Liquidity Conditions in the Banking Sector, Should Help Banks Further Reduce The Rates of their fds and other liability-roads fund sources. This should result in quicker Reduction of Funds for the banks and thereby, allow a more effective transmission of policy rates in loans linked to internal benchmarks.
(Tagstotranslate) repo rate cut
Leave a Reply