RBI yesterday has hiked the repo rate yet again and this time its gone up by 50 basis points. Now the repo rate stands at 4.90%. This is the 2nd time Reserve Bank of India has hiked the repo rate in a span of 5 weeks. Last time repo was hiked 40 basis points during May-2022.
With repo rate hike, banks will be left with less money but it will certainly have an impact on the new and existing home loan customers. Floating rate housing loans are linked to RBI’s repo rate benchmark and every time there is repo hike, your bank/housing loan company will pass it on to you within few weeks/ months after changing their internal policy.
So, if you are an existing home loan customer and your home loan interest rate goes up due to repo hike, your EMI will remain the same but your home loan tenure will increase to accommodate the additional rate change. In case of new home loan borrowers, the new rate will be applicable from day one and EMI will go up to accommodate the repo hike effect. In case you already have a new home loan sanctioned, you must try to get it disbursed at the existing rates before your financer revises the rates upward.
RBI has been citing the reason of higher inflation and their concern as the central bank to curb inflationary pressure. While raising repo rates on 8th June 2022, Reserve Bank has stated in its statement that inflation is going to stay for the 1st three quarters of FY22-23 and it will be over 6%. This statement itself indicates that the regulator is worried on the increasing inflation and may take further steps in future to raise repo to bring inflation under control. If that happens the loans might even be more costlier in the days to come.
Exiting loan borrowers can not do much apart from continuing to pay their EMIs or pre-pay their loans if they have savings else where but the new loan borrowers certainly need to do their mathematics before deciding on their new home/ home loan as this will be a long term commitment towards paying EMIs.