Good News Cheaper rates on home loan as RBI cuts repo rate

With many positive, upbringing changes, 2019 is considered a good year for the housing sector as home loans are set to become cheaper after the Reserve Bank of India has torn the repo rate by 25 basis points to 5.15%. This is for the fifth time the Central Bank has slashed the short term lending rate. Earlier, on 6th June 2019, it has decreased the repo rate by 25 point basis, bringing it down from 6.00 to 5.75%. Again on 7th August 2019, RBI brought it further down by another 35 bps, making 5.40. Altogether, these repo rate cuts are a great incentive for the home loan seekers as they are going to avail an attractive rate on their borrowings. So, read on to find how it impacts you and know more on cheaper rates on home loans as RBI cuts repo rate…

What is Repo Rate?

Repo rate (Repurchasing option) is the interest at which the Reserve Bank of India lends money to commercial banks in the country. The commercial banks pass this benefit to their customers by reducing the interest rates on the loans they provide. Whenever there’s a cut in the repo rate, there’s a decline in the interest rates on loans offered by different banks. 

What is the Reverse Repo Rate?

A Reverse Repo rate is a rate that RBI offers to the banks when they deposit their surplus cash with RBI for shorter periods. The reverse repo rate has a counter relationship with the money supply in the economy. This way banks can elevate additional interest from their funds. 

What are the components of a Repo Transaction?

Following are the list of components of a repo transaction between the RBI and the bank:

• Banks provide eligible securities.
• Reserve Bank of India gives one day or overnight loan to the bank.
• Reserve Bank of India charges interest from the bank.
• Banks recompense the loan after one day and repurchase the security they gave as collateral.  
   

Cheaper rates on home loan as RBI cuts the repo rate

Fall in the repo rate reduces the interest rate which means the consumers have to pay a lesser amount of interest. This, in turn, brings down the overall cost of your loan. However personal loans, home loans, and car loans, etc are expected to get cheaper due to the recent reduction in the repo rate. 

How RBI’s rate cut impact the homebuyers?

• Firstly, the RBI’s repo rate cut comes into effect only if the banks decide to pass on the benefits to their consumers. 
• Your banker has to lower the base lending rate. If your bank lessens the base rate, then only you can see your loan EMIs falling. 
• If you want to get the EMI reduced, you may have to contact your lender or banker to reset the terms and conditions. 
• The existing bank customers can see either their loan tenures or EMIs coming down. Also, the rate cut will make a significant difference if the remaining loan term or tenure is very long. 
• Your home loan EMI has two components – the interest and principal. You need to consider the remaining loan tenure, loan outstanding, interest differential and related charges before opting for a home loan switch. 

How RBI’s rate cut impact the industrial sector?

After benefitting the home borrowers, a decline in the repo rate offers a huge boost to the industrial sector. With this, industries will be able to get loans at cheaper interest rates from the lenders. This can make commodities cheaper, ultimately benefitting you the end customer, again.

Conclusion

In conclusion, changes in the repo rate can directly impact big-ticket loans, like home loans. It will put more money in the hands of the new borrowers/consumers and help revive the economy…