The Reserve Bank of India (RBI) on Wednesday kept the repo rate unchanged at 6.5% post the decision of its monetary policy meeting was announced, and shifted its stance from ‘accommodative’ to ‘neutral’. The RBI’s current objective is to keep inflation within its target rate of 4%. In light of global economic challenges, the primary focus remains on curbing inflation and eventually lowering repo rates.

Borrowers have been anticipating a decrease in loan interest rates for an extended period. The RBI has not altered the repo rate since February 2023, and attention is now directed towards the central bank for potential reductions following the recent 50-basis point cut by the US Federal Reserve. However, given the prevailing inflationary pressures in India, it is unlikely that the RBI will implement any rate cuts in the near term. This raises the question: what should borrowers consider doing at this juncture?

Adhil Shetty, CEO of Bankbazaar.com, says, “The RBI has kept the repo rate unchanged at 6.5%, which is good news for inflation control. The repo rate has now remained unchanged at 6.5% for nine consecutive Monetary Policy Committee (MPC) meetings, after a cumulative hike of 250 basis points since May 2022. The RBI has shifted its stance to neutral. This means it is ready to act either way, depending on how things unfold. If inflation stays low, we may see rate cuts in the future. But for now, it’s a wait-and-watch situation.”

“Loan holders may need to wait longer for rate cuts, possibly until December. If inflation stays under control, a rate cut could come. Until then, EMIs will remain at current levels,” Shetty concluded.

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Opt for a Fixed-Rate Home Loan

In a high-interest environment, choosing a fixed-rate home loan can be a wise decision. Fixed-rate loans provide a stable interest rate for the entire loan tenure, offering predictability in monthly payments and shielding you from future rate hikes. While these loans may start with a slightly higher rate compared to floating-rate options, they provide peace of mind by ensuring that your EMIs remain constant.

Choose a Shorter Loan Tenure

Shetty explains, “Shorter tenures mean higher monthly EMIs, but they significantly reduce the overall interest cost, making the loan more economical in the long run. This strategy is ideal for those who can afford higher EMIs and want to pay off their home loan faster.”

Negotiate for Better Terms

If you have a good relationship with your bank, don’t hesitate to negotiate for more favourable loan terms. This could include a lower interest rate, more flexible repayment options, or reduced fees. Lenders are often willing to offer better terms to customers with a strong repayment history, so it’s worth discussing these options.

Down Payment

A smart way to manage high-interest rates is by making a larger down payment when purchasing a home. Contributing more upfront reduces the total loan amount required, which in turn lowers your monthly EMIs and the overall interest paid over the loan tenure. This approach, though requiring significant savings, can substantially ease long-term financial obligations.

Collateral Loans

Using assets like fixed deposits, gold, or mutual funds as collateral can help finance your home purchase or make a larger down payment. This reduces the amount you need to borrow, which can lower your monthly EMIs and the total interest burden over time.

Make Prepayments

Making prepayments, either by paying more than your regular EMI or making lump-sum payments towards the principal amount, can significantly reduce your overall interest cost. Setting aside funds for prepayments can help you take advantage of future rate cuts, enabling you to lower your debt more quickly.

Balance Transfer

A home loan balance transfer involves moving your existing loan to another lender offering a lower interest rate or more favourable terms. This can help reduce your monthly EMIs or shorten your loan tenure, ultimately saving on interest costs. However, be sure to consider any associated fees, such as processing charges, to ensure the savings outweigh the expenses.

By following these tips, borrowers can manage their home loans effectively even when interest rates are high. It is important to check your financial situation and select the options that best align with your needs and goals.