News Karnataka
Friday, March 29 2024
Cricket
Business

Rate cut by RBI should lead to cheaper home loans

Photo Credit :

Home loan customers may be in for some good news after repo rate cut by Reserve Bank of India, say credit experts. The home loan rates may slide down for both existing as well as new customers, as there should be more room to cut the rates.

“Private sector banks and State Bank of India are expected to pass on the benefit of the repo rate cut to the end customers, by reducing the home loan interest rates soon,” says Vineet Jain, CEO of loanstreet.in Reserve Bank of India today announced a downward revision of 50 basis points in the repo rate, the rate at which it lends to the banks. Consequently the repo rate stands at 6.75 per cent as compared to 7.25 per cent earlier. 100 basis points make one percentage points.

 As the cost of raising funds for the banks goes down, the banks are expected to pass on the benefits to the borrowers. Traditionally policy rate cut has been a signaling mechanism for the central bank to influence the interest rates in the economy. However, over last eight months, since the rate cut cycle begun by RBI, there is not much action seen in terms of rate cuts by commercial banks and home finance companies.

RBI has taken note of this phenomenon. “The median base lending rates of banks have fallen by only about 30 basis points despite extremely easy liquidity conditions. This is a fraction of the 75 basis points of the policy rate reduction during January-June, even after a passage of eight months since the first rate action by the Reserve Bank. Bank deposit rates have, however, been reduced significantly, suggesting that further transmission is possible,” says RBI’s fourth bi-monthly monetary policy statement released today.

“Governor is vocal about transmission of interest rates. There may not be an immediate fall of 50 basis points, however, one can expect a 25-30 basis points cut in home loan interest rates,” says Gajendra Kothari, MD & CEO of Etica Wealth Management. While he takes a conservative call on movement in home loan rates, others do not rule out possibility of aggressive rate cuts.

Rajiv Raj, co-founder and director, creditvidya.com says, “Home loan borrowers can expect an immediate reduction of 25 basis points. One can also see some private banks with good CASA base offering aggressive rate cut of 50 basis points.” For loan amount of Rs 50 lakh to be repaid in 20 years, a cut in interest rate from 10% to 9.5%, will lead to reduction in repayment term by approximately 22 months – that is the loan gets repaid in 18 years 2 months, instead of 20 years.

If you choose to keep the term constant the EMI goes down from Rs 48,251 to Rs 46,606 – saving of Rs 1645. Most credit experts advise the home loan customers to keep the EMI amount constant and pay off the home loan earlier by taking advantage of the fall in interest rates. In case, the bank does not pass on the home loan rate cut benefit to the end customers, they can opt to refinance their home loan with some other bank of housing finance company.

However, please note that the differential in interest rates should be around 100 basis points. Also do compare the change in EMI amount with new lender with the cost of transfer to the new lender.

 

Share this:
MANY DROPS MAKE AN OCEAN
Support NewsKarnataka's quality independent journalism with a small contribution.

How useful was this post?

Click on a star to rate it!

Average rating 0 / 5. Vote count: 0

No votes so far! Be the first to rate this post.

This site is protected by reCAPTCHA and the Google Privacy Policy and Terms of Service apply.

To get the latest news on WhatsApp