RBI Hikes Repo Rate Which is Affecting Home Loans

The governor of the Reserve Bank of India (RBI) recently announced a rise in key policy rates. According to the announcement, the RBI increased the repo rate by 50 basis points to 5.90% from 4.90% previously. This is the third hike this year. Let’s find out how it is affecting the home loans and investment planning of home buyers.

Current RBI Repo Rate: 5.90%.

What is the Repo Rate?

Repo Rate is considered the rate at which a country's commercial banks borrow loans from the central bank (in India, Reserve Bank of India) in the event of a cash crunch. Monetary authorities utilize the repo rate to limit inflation.

How Does the Repo Rate Affect Home Loans?

The impact of the repo rate hike will translate into higher monthly installments on new home loans.

Existing debtors' loan terms will be increased, resulting in a larger interest burden. However, if their tenure is exceeded, which is normally the retirement age for salaried employees and 65 years for self-employed people, their EMI may also increase.

Floating rate loans will become more expensive as the repo rate rises. All new loans will very certainly be more expensive. This will result in increased interest costs and EMIs.

For example, on a Rs 50 lakh home loan with a 7% interest rate over 20 years, the EMI is Rs 38,765 and the interest is Rs 43.03 lakh. If the rate rises to 7.9%, the EMI will be Rs 41,511 and the interest will be Rs 49.62 lakh. Your EMI is fixed and will not change, but the number of EMIs you pay may increase.

Borrowers can reduce their interest rates by refinancing, increasing their EMIs, and making frequent pre-payments. While paying down 5% of your balance per year would be ideal, even a minor prepayment of one EMI each year can result in significant savings.

Prepaying your mortgage is an excellent financial planning strategy regardless of whether interest rates rise, fall, or remain constant. This is because being debt-free as soon as possible in life is always preferable.

However, some industry analysts predict that the increase in house loan interest rates will be restricted, at least in the near future.

According to experts, home loan rates are unlikely to rise by more than half a percent this year. Home buyers should take advantage of the cheap borrowing rates that are currently available. During inflationary times, real estate is always a preferred asset class to invest your funds. Incentives such as stamp duty and registration fee reductions can assist the real estate sector to maintain its good momentum.

Related Post: Which Are The Best Home Loans In 2022?

In a city like Pune, value for money real estate projects are also attractive due to the limited quantity of residences in each neighborhood. A location can only hold a certain number of residences, and once that threshold is reached, prices begin to rise.

Fortunately, famous Pune neighborhoods such as Hinjewadi, Wakad, Tathawade, Sopan Baug, and Kharadi are still underdogs, thus investing in these areas is still a great opportunity.

• Kohinoor Courtyard One, Wakad
• Sapphire Phase 3, Tathawade
• Kohinoor Presidentia, Sopan Baug Annexe
• Abhimaan Homes Phase 3, Shirgaon
• Sportsville, Hinjewadi
• Viva City, Dhanori
• Jeeva, Bibvewadi
• Grandeur, Ravet

All these projects come with 20+ lifestyle amenities like a swimming pool, garden, CCTV cameras, club house, lifts, branded fittings and more. Also, these projects are also assured with a lifetime maintenance promise - The ‘Sada Sukhi Raho’ promise by Kohinoor Group.

About Kohinoor Group

For 38+ years, the Kohinoor Group has proudly stood as a leader in Pune's real estate development business. The group began operations in 1983 with a cement trading business under the capable leadership of Mr Krishnakumar Goyal, Chairman and Managing Director.

Kohinoor Group began with construction and development in the year 1989, under the name Kohinoor Construction. Today, the company has developed and delivered over six million square feet across Pune, with another three million square feet under construction. It also has interests in industries such as manufacturing, logistics, and services.