The Reserve Bank of India’s (RBI) recent decision to maintain the repo rate at 6.5% has brought both relief and a sense of waiting for prospective home buyers in India. While existing borrowers can breathe easy knowing their EMIs won’t change, those hoping for a significant drop in interest rates might have to hold on a while longer.
What the Repo Rate Freeze Means for Existing Borrowers
Existing home loan borrowers should be pleased to hear that their monthly payments will not change. Since most floating-rate home loans are now linked to the repo rate, a steady repo rate translates to predictable EMIs. This stability allows for better financial planning and budgeting empowering borrowers to explore strategies for potentially reducing their overall interest burden.
Tips for Existing Borrowers to Save on Interest Costs
Even with a steady repo rate, there are strategies existing borrowers can employ to potentially reduce their overall interest outgo:
Make lump-sum prepayments: Utilise your savings or bonuses to make additional payments towards your principal amount. Even a small amount extra each month can significantly reduce your interest payout over the long term.
Explore refinancing options: If you’re currently on a loan linked to an older benchmark like MCLR, consider switching to the option of a repo-linked loan . This could potentially lead to a lower interest rate and substantial interest cost savings.
Negotiate with your lender: Sometimes, simply approaching your existing lender and informing them of competitive rates offered elsewhere can lead them to offer a better interest rate to retain your business.
New Borrowers: Cautious Optimism and Strategies to Find the Best Deal
While the unchanged repo rate doesn’t necessarily signal a future rate cut, it also doesn’t guarantee a rise in the near future. This creates a window of opportunity for new home buyers to enter the market with some degree of stability in interest rates. The key for new borrowers is to be meticulous when choosing a lender. Here’s what you should focus on:
Shop around for the narrowest spreads: Banks add a spread or markup (additional margin lenders charge) to the repo rate to determine their lending rate. Look for lenders offering the lowest spread over the repo rate to get the most competitive interest rate.
Consider lenders offering introductory offers: Some lenders might have special deals with slightly lower interest rates for a specific period. These can be beneficial, especially for those looking to shorten the loan term.
