RBI Repo Rate Hike: Home Loan EMIs For Existing And New Loans To Get Costly

RBI Repo Rate Hike: Home Loan EMIs For Existing And New Loans To Get Costly

With the RBI increasing the repo rate by 40 basis points, existing as well as new loans will get costly, and your monthly EMI outgo is all set to increase. Read here for more details

ICICI Bank and Bank of Baroda have increased the rate of interest on home loans. This came a day after the Reserve Bank of India (RBI) on May 4 increased the repo rate by 40 basis points from 4 per cent to 4.4 per cent. 
 
Other banks are now expected to follow suit and increase the rate of interest across their product lines. Car loan rates are also expected to go up.

Previously, HDFC Bank and the State Bank of India had hiked the rate of interest on home loans. 

What it essentially means is that the now not only new borrowers, but even existing borrowers will feel the pinch of this increase in repo rate. The equated monthly instalments (EMIs) on the various existing home loans will also increase.

For the uninitiated, repo rate is the rate at which the RBI lends money to commercial banks. 

What Can Existing Borrowers Do? 

Due to the increase in the rate of interest, your monthly EMI outgo on your home loan will also increase. Either, you can increase the tenure if you want to keep the EMI same as before, or you can increase the EMI outgo if you can afford to pay the extra EMI each month.

Alternatively, you could consider refinancing your outstanding loan with another lender at a lower rate of interest. 

Increasing the tenure will be the easiest on the pocket, but could hurt your long-term financial planning, as it could set you poorer by a few lakh rupees, depending on your outstanding loan amount and the rate of interest.

Shifting to another lender is a viable option, but in case that doesn’t work out, you could consider increasing your monthly EMI outgo while keeping your loan tenure same. Alternatively, you could rearrange your monthly finances and allocate any annual windfall, such as bonus, allowances and so on, to prepay the outstanding loan amount in lump sum.

Prepaying loans is an effective way to reduce the overall financial burden on your outstanding loan.

Car And Personal Loan Borrowers

Personal loans and car loans are typically on fixed rates, and therefore, the EMIs and the rate of interest will remain the same for existing borrowers. But new loans and floating rate loans will become dearer. 

Where Do You Gain?

Fixed deposits could fetch you a higher return, as the hike in repo rate usually leads to a hike in the deposit rates.

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