In a major relief to homebuyers, the Reserve Bank of India (RBI) on Friday unanimously decided to keep the repo rate unchanged at 6.5 per cent in its monetary policy meeting. The apex bank continues to keep its focus on controlling inflation as external factors continue to keep the pressure on the internal economic situation in the country.

When the RBI keeps the repo rate unchanged, it means that the central bank is maintaining the current level of interest rates at which it lends money to commercial banks. Homebuyers are cautious as their loan tenures have gone up. Rising EMIs is posing challenges to many existing borrowers who would get more time to make prepayments to rationalise their loan interest rates.

Adhil Shetty, CEO, Bankbazaar.com, says, “RBI expectedly kept the policy rates paused in its monetary policy review for October. With this the repo rate remains paused at 6.50 per cent since February 2023. The RBI’s view is that developed economies are nearing a peaking of rates. This is welcome, although inflation is expected to remain elevated for longer than anticipated.”

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The RBI decision can have the following implications for homebuyers:

Interest Rates

The repo rate directly influences the interest rates offered by commercial banks on various loan products, including home loans. When the RBI keeps the repo rate unchanged, it implies that banks are unlikely to change their lending rates immediately. Homebuyers may benefit from stable or unchanged interest rates, as it means their EMI will remain consistent, making it easier to plan their finances.

Shetty says, “Homebuyers will welcome the pause on the repo rate though they would also hope for a rate cut soon. When the central bank keeps the repo rate steady, it results in a sustained period of unchanged or relatively stable rates. This consistency aids prospective homebuyers in planning their finances and commitments. Those looking to purchase properties or refinance existing home loans can find this decision favourable.”

Borrowing Costs

Unchanged repo rates can be advantageous for homebuyers as it keeps borrowing costs steady. If the RBI were to raise the repo rate, banks might pass on the higher borrowing costs to consumers by increasing home loan interest rates. On the other hand, a rate cut can potentially lower home loan interest rates, reducing the cost of borrowing for homebuyers.

Housing Demand

Stable or lower interest rates can stimulate housing demand, as homebuyers find it more affordable to finance their purchases. This could lead to increased activity in the real estate market. However, the existing borrowers may find this an opportunity to partially prepay their loans and lower the interest burden.

Property Prices

The impact of unchanged repo rates on property prices can be mixed. On the one hand, lower interest rates can push property prices higher as more people can afford to buy homes, increasing demand. On the other hand, steady or higher interest rates can moderate property price growth or even lead to a correction if the cost of borrowing becomes prohibitive for potential buyers.

Refinancing Opportunities

If you are an existing homebuyer with a floating-rate home loan, unchanged repo rates may present an opportunity to consider refinancing your loan to avail of lower interest rates if they are available from lenders. However, it’s essential to evaluate the associated costs and consider the long-term benefits of refinancing.

While the repo rate is a significant factor, home loan interest rates are also influenced by various other economic and market conditions, including inflation, liquidity, and the policies of individual banks. Therefore, it’s advisable for homebuyers to keep an eye on the overall economic situation and consult with financial experts or lenders to make informed decisions about their home loan choices.