With the Reserve Bank of India (RBI) maintaining the repo rate at 6.5% during its monetary policy review meeting held on Thursday, home buyers can take a sigh of relief, as home loan rates are expected to remain stable in the near future. For those who have previously taken out home loans at higher interest rates, this presents a valuable opportunity to reduce their interest burden through partial repayments or by fully settling their loans, should they have the necessary funds.

Future repo rate reductions may be anticipated in the forthcoming Monetary Policy Committee (MPC) meetings, contingent upon inflation staying within the central bank’s target range and a slight moderation in food inflation. Additionally, fixed deposit rates are expected to either remain elevated or increase for banks that have yet to announce any rate hikes.

Commenting on the same, Adhil Shetty, CEO of Bankbazaar.com, said, “The unchanged repo rate and potential rate cuts in the upcoming MPC meetings are positive signs for home loan borrowers, making it an opportune time for them to make home-buying decisions and for existing borrowers to repay their loans and reduce their burden. Fixed deposit rates are likely to increase, as some banks have already announced hikes recently. Borrowers with loans linked to the repo rate, including home loans, personal loans, and business loans, will experience stability in their interest rates.”

Also Read: Best Senior Citizen Fixed Deposit interest rates offered by India’s top 15 banks in August

Evaluate Fixed vs. Floating Rates

Floating Rate Advantage: Given that the repo rate remains unchanged and potential rate cuts are anticipated, floating rate loans could be advantageous. If the RBI reduces the repo rate in future meetings, your loan EMIs may decrease. Home loans are already available right now at competitive levels as banks offering good deals to consumers with higher credit score.

Fixed Rate Stability: If you prefer stability and predictability in your EMIs, consider switching to a fixed rate loan. However, this might mean paying a slightly higher interest rate now compared to floating rates. Also, the possibility of rate cuts may not allow you to choose fixed rates at this stage.

Refinance Existing Loans

Lower EMIs: With the current stable interest rate environment, this is a good time to refinance existing home loans to benefit from potentially lower EMIs.

Compare Offers: Shop around and compare loan offers from different banks and financial institutions to find the best interest rates and terms.

Prepay Loans to Reduce Burden

Lump Sum Payments: If you have excess funds, consider making lump sum prepayments towards your home loan. This will reduce the principal amount, subsequently lowering your EMI burden.

Regular Prepayments: Regular small prepayments can also significantly reduce your loan tenure and overall interest outflow.

Monitor Economic Indicators

Keep an Eye on Inflation: Stay informed about inflation trends and RBI’s monetary policy changes. Any reduction in inflation might lead to lower interest rates in the future.

Global Economic Conditions: Be aware of global economic conditions, such as the US Federal Reserve’s interest rate decisions, as these can influence RBI’s policies.

Leverage Stability for Financial Planning

Budgeting: With predictable loan interest rates, you can plan your budget more effectively. Allocate funds for savings, investments, and other financial goals.

Fixed Deposits: Risk-averse investors and senior citizens may consider investing in fixed deposits if banks increase FD rates. This can provide a safe and stable return on your savings.

In the current economic situation, home loan borrowers should take advantage of the stable interest rates and potential future cuts by considering floating rate loans, refinancing existing loans, and making prepayments to reduce their burden. It would be helpful if you consider repayments of your higher interest loans and new borrowing could be done at competitive rates available in the market.