The repo rate, or repurchase rate, is the rate at which the RBI lends short‐term funds to commercial banks by way of securities (government securities) as collateral. When banks borrow at this rate, their own cost of funds is influenced. Let me tell you more about what is repo rate in home loan.
What is RBI Repo Rate for Home Loan?
The current RBI repo rate is 8.15% for a home loan. Banks’ lending rates (such as for home loans) reflect their cost of funds plus margin. Changes to the repo rate eventually impact what you pay for a home loan.
For example, when the repo rate goes up, banks’ borrowing cost rises, and thus they are likely to raise home loan interest rates.
Conversely, when the repo rate is cut, borrowing becomes cheaper for banks, and that can lead to lower home loan rates (especially floating‐rate loans) for borrowers.
If your home loan is linked to an external benchmark (such as the repo rate or a policy rate derived from it), then changes in the repo rate can lead to adjustments in your EMI.
The actual interest rate offered will also depend on your credit profile, repayment term, loan amount, and the bank’s spread over the benchmark. Since many home loans in India are on floating or adjustable rates, the repo rate is part of the “transmission mechanism” that links central bank policy to your EMI.
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Every time the Reserve Bank of India makes a change in the repo rate, house buyers are told that the cost of borrowing will become lower/ higher due to the change. This is why it is necessary to know about the impact of repo rate in home loan as well as the repo rate linked home loan.
What is Repo Rate for Home LoanJust like borrowers are required to pay interest to take home loans from banks, financial institutions are also required to pay interest, for the money they borrow from the RBI. This interest is referred to as the repo rate.
The cost of borrowing for banks goes down when the RBI lowers the repo rate. Similarly, the housing loan interest rates go up when the RBI makes an upwards tweak in its lending rate.
Current Repo Rate for Home Loan:4%
Repo Rate Linked Home LoanAs per the regulation by RBI, banks introduced this scheme under which housing loan rates of interest for floating loans are benchmarked to the repo rate instead of MCLR (Minimum Cost to Lending Rate).
If you’re an existing borrower of a housing loan and your bank has introduced the repo rate-linked home loan, then you can transfer your housing loan from MCLR based to repo rate-based, with no additional spread or margin. However, you might have to pay some administrative charges as per the bank’s policy.
This is all about home loan repo rate.
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Read more:
What is Repo Rate of RBI?
What is the difference between bank rate and repo rate?
What is the difference between repo rate and reverse repo rate?
I hope now you know about the repo rate linked home loan.
What is repo rate in home loan?
Hemu
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2021-12-29T17:50:29+00:00 2021-12-30T17:46:36+00:00Comment
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