Home Loan Interest Rates; Here's How To Lower Your EMIs When Repo Rate Is High

In a recent monetary policy review on December 8, the Reserve Bank of India (RBI) decided to keep the repo rate unchanged, leaving home loan borrowers dealing with heightened interest rates. Since October 2019, all floating rate loans issued by banks have been linked to an external benchmark-based lending rate (EBLR), specifically the repo rate for retail loans. Unfortunately, the recent 250 basis point increase in the repo rate, between May 2022 and February 2023, has led to a surge in home loan rates, placing an additional burden on borrowers.

Currently, many banks are offering home loans with interest rates ranging from 8.4% to 11.0%, or even higher. This has prompted borrowers to explore options for relief, with one viable solution being to approach their respective banks for a reduction in the interest rate.

To seek a reduction, borrowers can send an email request to their banks and pay a repricing or conversion fee. This fee typically ranges from 0.25% to 0.50% of the outstanding loan amount, according to information from BankBazaar. Alternatively, borrowers can consider shifting their loans to another bank through a home loan balance transfer. However, this process involves more paperwork, time, and additional costs.

How to Calculate Your Savings

Borrowers looking to gauge the impact of a rate cut can use online home loan refinance or balance transfer calculators. These calculators require inputting various loan details, including the principal outstanding, loan tenure, and existing and new interest rates. While the principal outstanding might not be readily available in online home loan accounts, borrowers can obtain this information by contacting their current banks.

The calculator typically displays total savings and savings per Equated Monthly Installment (EMI), especially if the borrower intends to maintain the loan tenure. Another approach is to keep the EMI unchanged and observe how the tenure decreases due to the lower interest rate. By comparing this with the one-time expenses for fees and other charges related to home loan repricing, borrowers can make an informed decision.

Transitioning from Base Rate and MCLR to Repo-Linked Loans

Before the introduction of repo rate-linked home loans in October 2019, loans were often linked to the Marginal Cost of Funds-Based Lending Rate (MCLR) or the base rate. For old home loan borrowers still tied to MCLR or base rate-linked loans, a repricing request provides an opportunity to shift to the more transparent repo rate-linked system.

This transition not only aligns with the current market dynamics but also ensures greater transparency in interest rate adjustments. It allows borrowers to benefit directly from changes in the repo rate, promoting a fair and uniform approach to interest rate movements across the lending landscape.

Seeking Financial Relief Amidst Economic Uncertainty

The decision by the RBI to maintain the repo rate at its current level has left many home loan borrowers facing the challenge of high interest rates. In such a scenario, it becomes imperative for borrowers to explore avenues for relief and financial optimization.

Approaching the bank for a reduction in interest rates or considering a home loan balance transfer are viable strategies. However, borrowers must carefully weigh the costs involved and the potential savings before making a decision. Utilizing online calculators and understanding the intricacies of repricing can empower borrowers to navigate the complexities of the current economic landscape.

Proactive measures, such as repricing home loans, can provide financial flexibility and help borrowers adapt to the ever-changing nature of the lending market.