RBI repo rate hike: So what should home loan borrower do now? Check out
Hike in RBI repo rate: The Monetary Policy Committee (MPC) of the Reserve Bank of India (RBI) on Wednesday decided to raise the key benchmark interest rate by 25 basis points to 6.5 per cent. Undoubtedly, this is all set to burden home loan borrowers, who will have to pay more now.
For home loan borrowers, the rise in the rep rate by the RBI will lead to change in the way they repay their loan — an increase in monthly EMI or increase their tenure.
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A silver lining
After the increase in the repo rate, home loan borrowers are finding themselves in a fix. They are haunted by questions whether they should opt for an increase in EMI, increase the tenure or pre-pay home loan. However, experts say that the timeframe in which the borrowers decide to repay the loan matters. It is also likely that the RBI pause on the rate increase cycle as inflation is moderating.
The impact
The rise in the repo rate will definitely put burden on existing borrowers as well as those who are planning to get loan as they will have to get at higher interest rate. This repo rate increase will make all sorts of loans such as auto, home and personal costlier. Experts say when repo rate is increased, banks find it difficult to borrow from central bank.
What experts suggest
Experts say home borrowers can increase their EMI by 5 percent once annually. This will help them cut on their tenure.
If an individual has taken loan for 20 years, then he/she can repay the amount in 12 years by pre-paying 5 percent of the loan balance once in a year. Since home loan is low-cost loan, one can go easy and balance the same with other investment needs.
Experts also suggest that one can simply check the impact of the increase by following simple things. They can opt for a floating rate of interest. If we compare it with fixed interest rate, it increases and declines with the rest of the market.
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Another option is prepaying the loan. If the interest rates are higher and and one is paying more than the EMI, then it reduces the principal amount and overall interest .
- With inputs from agencies
