The RBI’s slashed the repo rate by 40 basis points in a recent Monitory Policy Committee meeting. Housing loan borrowers are typically likely to be affected by this decrease in repo rate in the near future. It is because any change in this rate often results in alteration of housing loan interest rates as well.
What is the repo rate?
The Reserve Bank of India extends financing to all other financial institutions operating in the country at a fixed rate known as a repo rate. Based on the repo rate, these lenders decide the interest rate on popular consumer loan products. With the recent decision to cut down the repo rate by 40 basis points, the current repo rate rest at 4%, down from the previous 4.4%.
Financial institutions are expected to adjust housing loan interest rates accordingly, passing on the benefits of this change in repo rate to its consumers. The lower interest charge on new home loans should encourage more individuals to opt for such credit to initiate property purchase.
Existing borrowers can also benefit from this change immediately by looking for home loan refinancing. With lower interest rates on a housing loan offer from another lender, these individuals can shift their existing advance to the new lender to avail more favourable terms on interest charge.
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Further, financial institutions need to adjust interest rates after every three months to comply with this repo rate benchmark. Therefore, one may need to wait a few weeks or months to notice any major difference in the current home loan interest rates.
