The Reserve Bank of India determines the rate at which money is lent to financial institutions in India. This is known as the repo rate, and it, in turn, ascertains the rate charged by the various lenders from its customers. Thus, any changes in repo rate tend to translate into alterations on interest payable by consumers as well.
In case of a home loan, repo rate cuts can result in a subsequent reduction of interest rate. Thus, when RBI changes its lending terms, it can directly affect the total interest payable on housing credit. To determine the exact change in your liabilities, use a home EMI calculator.
Nevertheless, home loan rates may increase as well, if the RBI decides to hike repo rates. When such a thing happens, you would need to service more significant EMIs, which can increase your monthly financial burden.
One thing to remember here is that such changes only affect individuals choosing floating interest on their home loans. Those with fixed terms will need to service the same EMIs throughout a credit tenure, irrespective of changes in RBI rates. Alternatively, such borrowers can transfer the existing dues to a different lender, offering more favourable terms.
A home EMI calculator can help individuals understand their monthly liabilities before repo rate changes affect them. Based on such calculations, one can decide whether to stick to his/her present lending institution or opt for refinancing. Checking the additional costs of such a move is an integral part of this step, helping one to assess profitability.
