The Reserve Bank of India declared an increase in the repo rate by 50 basis points to 5.4 per cent in its June Monetary Policy Committee (MPC) meeting. Since May, this is the third increment that has been undertaken to cool down the high inflation rate. This decision was taken to defend the rupee as it has fallen by 6.5 per cent since the start of the year. At present rupee is 80 vs the Dollar, which is considered to be an all-time low.
The interest rate also required a lift to the pre-pandemic level, and thus the repurchase rate has also been increased. But, the side effects have to be borne by the ones who have a home loan burden. Though there has been no change in the apartment cost in Kolkata, still, this sudden change will highly affect the buying and selling rate in the real estate market.
What is the repo rate?
The repo rate indicates the rate at which commercial banks borrow money from the RBI (Reserve Bank of India). So, an increase in repo rate indicates the cost of borrowing or any loan rate will also increase.
This will create pressure on the banks which will be subsequently passed on to the common borrowers, including home loans and car loans. Thus, based on the equated monthly installments (EMIs), the borrowers need to pay more interest as the rates have increased.
What is the present hike in Home Loan EMI?
The total increase in repo rate is 1.4 % after RBI declared a hike in the repo rates. The impact of this sudden increase will be felt by both the new as well as existing loan borrowers. For borrowers who had taken a loan before April 2022, the interest rate was about 6.5 to 7 per cent. However, after the increase, the interest rate will be around 8 per cent since the August Monetary Policy by RBI.
Suppose you have taken a home loan for 30 lakh and a tenure of 20 years in April 2022 at 7 per cent, then the EMI will rise by ₹ 2586 in the monthly billing. Previously, you might have been paying ₹ 23259, but at present, you have to pay ₹ 25845.
In particular, if you have borrowed a loan from SBI, based on the apartment cost in Kolkata, then the interest rate has climbed to 8 per cent from 7.1 per cent. So, if you have to pay ₹ 13441 EMI on a home loan of 20 lakh for 30 years, then it will rise to ₹ 14675 EMI, a steep rise of ₹ 1234.
The First Hike in Repo Rate
The new rates were declared on 4 May 2022 when 40bps, a hike in repo rates, were imposed by RBI. This was the first hike after a long gap of 4 years, and the last one was on 6 June 2018. This hike was recently followed by another hike on June 8, Monetary Policy Review, and it was increased by 50 bps. Thus, summing up the effect, within 93 days, the repo rate increased to 140 bps.
Decrease the Home Loan interest with proper planning
The new repo rate is a great concern for the home loan bearers. If you are a prime borrower who has a credit score over 750 with a stable income and pays all your loans on time, then you can get a home loan at 250-275 basis points over the repo rate. The lowest basis rate to get a home loan is within the range of 7.9 to 8.15.
The interesting fact is that the range can be reduced, and it depends on who the borrower is and from whom the loan is being borrowed. You can also choose to pay a higher EMI to combat the interest or consider a refinance with better terms.
To reduce the stress, you can transfer the outstanding loan balance to another bank which is offering comparatively lower interest rates. However, you must also take note of the processing fees and related charges.
Alternatively, you can opt for either full or partial prepayment to reduce the loan burden. This plan can only work if you have a surplus amount and would also help you to become free from debt at the earliest. The best part is that this won’t affect your credit score.
What about new applicants for home loans?
If you are a new applicant for a home loan, then choose a higher down payment or longer repayment terms. This decision would reduce the monthly installment amount. Further, if you are a long-term customer of the bank, then you can sit for negotiation.
Otherwise, for low rates, you have to look for NBFCs (Non-banking financial companies). The good news is the flat rate in Kolkata is at present quite reasonable, so you can compare and go for the best deal.
Will there be another hike?
The next policy is due in late September, and regarding that, RBI Governor Shaktikanta Das has not spoken a word or given any indications. The inflation outlook for the year is 6.7 % which remained unchanged as the retained GDP growth was 7.2 % for the current fiscal which would end on 31 March 2023, as declared by the Central Bank.
It is being said that the inflation would remain above the upper tolerance of 6 levels through the 2022-23’s first three quarters. Now, this would entail the risk of de-establishment of inflation expectations and would also trigger second-round effects.
It is expected by the data analyst that the RBI is going to set another hike in the policy interest rate by 100 basis points in the remaining part of the financial year, which would take the rate to 5.90 % by the end of FY23.
The rates that have reduced
Despite this hike in the repo rate, there has been a let-up in some global commodity prices, including industrial metals. Now, this might reduce the stress of building a new property. But, this is completely based on assumptions, and the facts can only be understood after the completion of real estate projects.
The primary reason that has led to this hike is retail inflation in India, which is still on the higher side of the CPI. So, if you are looking for apartments in Kolkata, you need to go for the best property prices and home loan deals from Srijan Realty.