The Reserve Bank of India (RBI) cutting the repo rate by 25 basis points to 7.25%. With this home loans and auto loans are going to be cheaper. The rate cut will benefit the banking sector and this may in turn translate into a lowering of the EMI burden currently borne by home and auto loan borrowers. It is widely expected that banks will actually go ahead and reduce the Base ate, which will benefit the old home loan borrowers who are paying much higher rates. The borrower should try and negotiate further with the existing lenders and try to get the rates at par with the rates quoted to new home loan borrowers
A drop in interest rate increases the eligibility criterion of the borrower. Even if there is a fall of 50 basis points, the eligible loan amount will increase by Rs 60,000-70,000. The EMIs will be reduced by Rs 30 per lakh. If the interest rate on a 20 year housing loan of Rs 50 lakh home lowers to 11% from 11.25%, it will translate into a saving of Rs 853 per month in the EMI.
It was widely expected that the RBI will cut rates in January due to a likely fall in core inflation coupled with lowering of GDP estimates. With more rate cuts by the RBI on the horizon this year, new borrowers stand to gain as banks pass on the benefit to them. If they also cut their benchmark base rates (to which home loan rates are linked), it will benefit the existing borrowers as well.
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