The Reserve Bank of India has not made any changes in interest rates in the first monetary policy meeting of this financial year. This is the sixth time in a row that the central bank has decided not to make any changes in interest rates. Currently, the repo rate is at 4 percent and the reverse repo rate is at 3.35 percent. In fact, the yield of government securities has increased due to the government’s plan to borrow more. This is the reason why the RBI has neither reduced nor raised the prevailing interest rates.
The repo rate is at the low level of the last two decades. In such a situation, it is a matter of relief for the borrowers. Home loan interest rates have been extremely low in the recent past. However, for those who have invested in fixed deposits, this decision of RBI has had to be disheartened. Keeping this same decision of RBI, we are going to tell you what will be the impact on your home loan EMI and what are the ways to reduce it?
1. For loans linked to external benchmark
There will be no change in the EMI of those whose home loans are linked to the external benchmark. Yes, if your bank decides to reduce the margin, your EMI may be reduced. On the other hand, if the bank decides to increase the risk premium on the loan account, then the EMI on your home loan can increase.
2. MCLR linked home loan
The marginal cost of fund based lending rate of any bank is affected by both external and internal factors. In such a situation, now the change in MCLR will depend on your bank internal factors. Usually, MCLR changes only once a year. In such a situation, if your bank cuts MCLR, then your EMI will also be reduced. But, this will only happen when your home loan reset period is going to come.
It is also important to know that the borrowers of MCLR linked home loan have the option to link it to the external benchmark. But for this you will have to contact your bank. Banks charge some fees for switching home loans.
3. Link Home Loan to BPLR
Those whose home loan is linked to base rate or benchmark prime lending rate (BPLR) should switch to external benchmark based home loan. In this, the decision on the policy rates of the RBI has a rapid effect. The SBI’s BPLR, which came into force from 10 March 2021, is 12.15 percent and the base rate is 7.5 percent. However, SBI’s repo rate linked loan interest rates start at 7 per cent.
4. What to do if you want to take a new loan?
If you want to take a new home loan then this is a good time for you. Currently interest rates are low, so you have a good chance to take advantage of it. However, before taking a loan you should also keep other factors in mind. Before taking a home loan at the lowest interest rate, compare the margin and risk premium of the banks. Also note that not all banks have chosen repo rate as an external benchmark. Some banks have also linked the interest rates on home loans with deposit rate certificates, treasury bills etc.
Also read: Great news for mobile wallet users like Paytm, PhonePe and Mobikwik, RBI changed rules to transfer money
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