Borrowers paying EMI on home loan and car loan based on a flexible interest rate will continue paying almost the same rate of interest as applicable to them as of now. But, the situation may change soon for the borrowers. “Bank loans linked to repo rates may not get repriced upwards, but the cost of the funds will definitely go up. Over all, a complex policy with a simple message of higher rates,” says Sandeep Bagla, CEO, TRUST Mutual Fund
As was widely expected, the Reserve Bank of India (RBI) in its first meeting of the Monetary Policy Committee (MPC) for the financial year 2022-23 held in April 2022 has kept the policy rates unchanged.
The repo rate remains at 4 per cent while the reverse repo rate is at 3.35 per cent.
Most banks are currently offering home loans starting at an interest rate of around 6.5 per cent. For those looking to get a home loan to buy their home, the interest rate environment appears conducive for them as the interest rate on home loan is at a multi-year low.
“For home buyers, this decision will help reinstate confidence and further access to affordable home loans and help foster housing demand. The low interest rates have been a crucial factor in the revival of the demand in the real estate sector in recent times and hence upsetting the current momentum would have been highly detrimental to the overall economic recovery,” says Ramani Sastri – Chairman & MD, Sterling Developers Pvt. Ltd.
RBI continues with the ‘accommodative’ monetary policy stance, however, it is expected by most analysts that RBI may have to increase repo rate in the latter part of the FY which will have an impact on the EMI’s of borrowers. The lending rates may go up in near future.
Choose a lender that offers a low rate of interest based on your profile. Even a 100 basis points reduction can help you to save a few lakh in interest cost, depending on the remaining tenure of the loan. Assuming a home loan of Rs 40 lakh for 15 years, one can save Rs 8.5 lakh in total interest cost and even save in EMIs totalling Rs 57000 in a year, if a lower rate of 2 per cent is what the borrower chooses.
Loans linked to RLLR and MCLR
If repo rate rises, those borrowers paying EMIs on loans linked to Repo Linked Lending Rate (RLLR), also referred to as an external benchmark rate (EBR) may witness an immediate impact while those on MCLR linked loans ( from April 2016) may also see a change in their EMIs when repo rates rise. If the cost of funds for banks goes up, the bank’s MCLR also moves up.
Borrowers who are paying EMI based on the bank’s MCLR may see some revision in their monthly installments as and when their reset-date comes. If you are a borrower with a loan linked to Marginal Cost of Funds based Lending Rate (MCLR), the fall in MCLR will help you pay lower EMIs on your loan as and when your reset-date comes up.
Between RLLR and MCLR, every time, RBI revises the repo rate, the revision in the interest rate is much quicker in RLLR for the borrower compared to the loans linked to MCLR.
Existing borrowers who have already taken a loan taken before October 1, 2019, may continue with their loans linked to Marginal Cost of Funds based Lending Rate (MCLR) or can switch to RLLR.
The MCLR loans can be switched to RLLR but one should carefully evaluate the cost-benefit before doing so. This may incur a cost and hence consider the remaining tenure of the loan before taking this step. Before switching, one may wait for a few more months to get a clear picture of the interest rate movement.