After August 2017, the Reserve Bank of India has once again cut the Repo rate by 25 basis points. The repo rate is the rate at which the central bank lends money to commercial financial establishments. Currently, the repo rate stands at 6.25%, down from 6.50%. It is thus time to revise your EMIs using a home loan EMI calculator.
The Monetary Policy Committee (MPC) of the RBI meets every two months, and the demand to slash the repo rate was long-standing. The RBI changes the repo and reverse repo rate in basis points, where each basis point is one-hundredth of a percentage points. Thus, the repo rate is now 0.25% lower, while the reverse repo rate is now 6.00%.
In 2018, the MPC had met multiple times but there were hikes by 50 basis points on the repo rate while reverse repo rate was unchanged. Thus, there was no impact on home loans in India. Now that the repo rate has gone down, there is bound to be a cut in the EMI amount payable by home owners.
Financial establishments like NBFCs are bound to follow suit and cut their Marginal Cost of Funds-based Lending Rates or MCLR. It is the minimum interest rate at which any financial establishment can lend. No lender can offer loans below this rate.
The Impact of REPO Rate Cut on Borrowers
For borrowers with MCLR rate-linked loans
If you are a borrower with a home loan whose EMIs are based on MCLR rates, you will enjoy some of the best home loan rates in recent times as the RBI sets curbs on repo rates. Over the last year, the RBI had hiked the repo rate by 50 basis points, which were then passed on by financial establishments to their customers.
Once the lender reduces its MCLR, you can then use a home loan EMI calculator and immediately notice a dip in the EMI burden. However, you can only benefit when your loan’s reset date arrives. You must ask your lender about your home loan reset clause.
Home loans from established NBFCs like Bajaj Finserv usually have a reset period of 6 months to 1 year. Once that date arrives, EMIs are recalibrated based on then-prevailing interest rates. Thus, your MCLR rate-linked loans will surely see a reduction in EMI burden.
NBFCs brings you several pre-approved offers on home financing and a wide variety of other financial products. It not only makes the process of availing finance easier but also saves you precious time.
For Borrowers with BPLR-linked Loans
The situation is slightly different for those who have a home loan linked to the Benchmark Prime Lending Rate (BPLR), also called base rate. Most financial institutions do not always change their BPLR even after a cut in rates. In December 2018, India’s largest public-sector lender had increased its BPLR rates even when the repo rate was stagnant.
It is best to switch to the MCLR-linked regime. That way, you will have to pay marginally less when repaying your home loan. MCLR-linked loan repayments are more transparent.
You can also use a home loan EMI calculator to good effect.
For New Borrowers
If you are planning to take a new home loan, ensure you avail one linked to the MCLR rate. Or you can also wait till rules for the ‘external benchmark regime’ come into place. You can then use the best housing loan calculator India to determine the best-suited loan for you.
Alternatively, you can also avail a loan under the Pradhan Mantri Awas Yojana or PMAY. If your home is still under construction, you must be aware of home loan tax benefits for under-construction property.
Example of Reduced EMI
If you had availed a home loan of Rs 25 Lakh over 10 years at an interest rate of 9.55%, your EMIs would have been Rs 33,715. Now, with the repo rate cut, the interest rate will go down to 9.30% and you will have to pay Rs 1,639 less every month. Your EMI will be Rs 32,076. Thus, you must always use a home loan EMI calculator to determine how much impact these cuts have on your repayments.