How will home loan EMIs be impacted?
On 10-02-2022, the repo rate remained at 4.00 per cent, the repo rate remained unchanged at 4.00 per cent at the RBI's MPC meeting on 08-04-2022, and the repo rate was hiked to 4.40 per cent at the RBI's MPC meeting on 04-05-2022, and the repo rate was hiked to 4.90 per cent at the current MPC meeting on 08-06-2022, implying a total repo rate hike of 0.9 per cent for the financial year 2022. With the recent policy rate hike, lenders such as banks and housing finance companies may raise their lending rates in response, which would result in an uptick in your EMIs.
By way of illustration, if you have an outstanding home loan of ₹20 lakh for a term of 30 years at a current interest rate of 7.1 per cent from SBI, your EMI will go from ₹13,441 to ₹14,675, a jump of ₹1234, if the SBI home loan interest rate climbs from 7.1 per cent to 8%. Similarly, the SBI car loan interest rate is now 7.45 per cent p.a., if you have an outstanding ₹10 lakh car loan with a 20-year term, your EMI would rise from ₹8,025 to ₹8,584, a rise of ₹559, if the SBI car loan interest rate rises from 7.45 per cent to 8.35 per cent. Similarly, the SBI personal loan now has an interest rate of 7.05 per cent per annum; if it rises to 7.95 per cent, your outstanding personal loan of ₹10 lakh with a 10-year term will see an increase in EMI from ₹11,637 to ₹12,106, a rise of ₹469 per EMI.
How to reduce higher loan EMIs?
Existing borrowers can use the balance transfer option to reduce their EMIs. This is a service that lets customers transfer their total outstanding loan balance to another bank that gives them lower interest rates on the outstanding loan amount. When the outstanding loan amount is higher, this is the best alternative, but processing fees and other related charges must be considered. The other option is full or partial prepayment, which helps the existing borrowers to reduce their loan burden. This option assists those with enough surplus funds in becoming debt-free sooner, and it has no negative impact on one's credit score.
New borrowers can choose a loan with a higher down payment to decrease their EMI burden, or a loan with a longer repayment term to reduce the amount owed in monthly installments. Customers who have a solid relationship with their bank can also take out loans through their existing banks, where interest rates may be negotiated. Alternatively, new borrowers can simply look for banks or NBFCs that would offer them lower rates on their preferred loan type.
In its statement today, RBI Governor Shaktikanta Das mentioned that “At the longer end of the money market term structure, interest rates on 91-day treasury bills, commercial papers (CPs) and certificates of deposit (CDs) firmed up post the rate hike in May. Yields on AAA rated 5-year corporate bonds have also increased. The rate hike also triggered an upward adjustment in the benchmark lending rates by banks. The term deposit rates of banks have increased and will augment stable funding resources amidst increasing credit demand."
Considering the RBI’s decision today, Mr. Manoj Dalmia, founder and director Proficient equities Private limited said “RBI has raised the repo rate by 40bps to 4.9% , the inflation projection for this fiscal is 6.7% and will remain above the tolerance band of 2-6% for three quarters in this fiscal, RBI is still expects the economy to grow at a rate of 7.2% . The SDF and MSF have been increased to 4.65% and 5.15% respectively, RBI is expected to reduce liquidity, reinforcing its fight against inflation and extending its effort to return monetary conditions. The cost of lending for banks is set to go up due to an increase in repo rate ,retail loans will face direct impact due to this."
