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Source: The post is based on the article “How RBI rate hikes impact your home loan EMIs, and what can help” published in Indian Express on 10th February 2023.
What is the News?
Recently, the Reserve Bank of India has increased the Repo rate.
How the repo rate increase will impact the borrowings?
People with loans are set to witness a spike in their equated monthly instalments (EMIs). This is because the interest rates of banks and finance companies are likely to go up with their cost of funds expected to rise post the Repo rate hike.
a) Although the rate hike will impact all types of borrowings, the rise will be immediate in the personal loan category, b) The marginal Cost of Funds-Based Lending rates (MCLR) will also increase, c) Home loans witness a nearly 19% increase in EMIs for the past 9 months.
Overall, the rate hike will put a strain on borrowers and might reduce the overall demand for homes, PLs, etc. Short-term moves are likely to have a major impact on the buyer’s decision. For instance, the decision will the price-sensitive homebuyers and weak the supply of the developers.
What options do borrowers have with the repo rate increase?
-Hoam loan borrowers might ask their lender to increase the spread (difference between MCLR and home loan rates offered to borrowers). This can provide some respite and reduce the financial burden on borrowers.
-Another option is to choose a floating interest rate. This type of rate is tied to market conditions, and if interest rates decrease, the EMI will also decreases.
Customers should make a higher down payment depending on their financial position.
