If you take a home loan from a bank, it will charge interest depending on the RBI home loan rate. There are a prime lending rate RBI fixed by the RBI.
Home loan interest rate is linked to an external benchmark. The RBI wants the banks to link it to the interest they charge.
RBI’s home loan interest rate
The treasury bill of the government of India is a key factor. The billing period is that of 6 months. Other benchmark rates are published by the financial and banking institutions. Almost all the banks have to attach the interest rate to the repo rate. It has become mandatory, yet some banks don’t follow the guidelines. Banks do charge a risk premium and it is burdening the borrower. The burden on the borrower depends on the credit history of the person. If the history is positive and favourable, he has to pay a lower rate of payment.
Borrowers are facing salary cut/job loss due to the novel coronavirus pandemic situation. They are looking for a reduction in their EMI. The RBI and the banks have to do something in this direction. The government should also take some important decisions in this direction. The government owes a lot to the people of India because they are in power out of a mandate of the people.
The RBI has kept the repo rate unchanged to provide some relief to the borrowers. The RBI has shown this gesture for the second time intending to go with the tide. The pandemic affected economy and its consequences cannot be overlooked by the apex institutions like the RBI and the Union Government. They have to be more accommodative and catholic in outlook. What is required at this juncture is an overture of equanimity and maturity. People’s patience is hanging by a thread that is getting thinner by the moment. The government cannot afford to play with the patience and forbearance of the populace. It has to decide fast and reach out to people in a hurry. Every single penny of people count and each passing day bears heavily upon the system. Nobody affords to wait until the bough breaks and the branch falls.
Keeping the repo rate the same is as expected as the rains in the monsoons. There is rising inflation over which the government has no control. To top it and to rub salt to injury, an unjust hike in the rate of repo rate, when the situation is getting ready to explode, will be irrational and regressive. There is an environment of uncertainty and the growth is nose-diving, there is no point remaining in the oblivion.
Why RBI asked banks to link lending interest rates to an external benchmark
In the past, there were dissatisfied borrowers and they went against the lenders about the home loan interest rates charged to them. The reason for their angst has been that the banks did not pass the benefits of any dip in the interest rates on to the borrowers. The banks did an unethical practice of raising the interest rate when there was a rate cut. When it was discovered by the borrowers, they showed their concern and they were peeved by the action of the banks. It was decided to make the things more transparent and it needed to bring the in a greater ethical system into the banking operations. It is necessary to link the interest rate to the external benchmark. If a bank doesn’t do it, it will result in a dissatisfied customer. It has resulted in some paradigm shift in the system. Now there is a faster transmission of disbursals and disposals.
The RBI has taken some steps to keep the rates of interest low. It will encourage more borrowings from the bank that will ultimately benefit the entire finance ecosystem. The reduction in home loan interest rate is going to build bulks of home loan takers from the market. The festival is coming, and it means there will be a better offtake of home loans in the ecosystem. If you are a taker of loan, you will be paying a lower EMI. It’s good news to many aspiring home loan takers. This system of linking the home loan or the interest for it attached to external benchmark is a practice banks should continue. The RBI has to play a very important role in this regard.
The SBI MCLR has come down as follows:
July 2016: 9.15 %
July 2017: 8.00 %
July 2018: 8.25 %
July 2019: 8.40 %
July 2020: 7.00 %
The repo rate remains at 4 %. The reverse repo rate is at 3.35 %.
The repo rate stays at 4 % while the reverse repo rate is at 3.35 %.
Also read : RBI may opt for an additional repo rate cut by 25 basis points
FAQ
What is the repo rate?
Repo rate is the rate at which banks borrow money from the RBI. So, the lower the repo rate, the lower the interest charged by the bank on the borrowers
What is the home loan interest rate?
The home loan interest rate is the interest charged by the lender. The borrower has to pay the interest. The cost of home loan is determined by the interest so charged. The EMI is affected by the amount of interest so charged by a bank. The EMI is paid every month. It is the total of interest and principal. The interest rate is linked to the repo rate. So, the repo rate is an important factor in determining how much you have to pay to the bank.
Which bank offers the lowest home loan interest rate?
The UNION Bank of India charges the lowest interest rate. It charges less for women borrowers.
How to get the lowest home loan interest rate?
All the banks are today charging low-interest rates. Previously, they were charging higher interest rates. To get the best interest rates, you should know which bank is offering the lowest. You should use the EMI calculators to know the precise amount. This will enable you to know the amount of money you are paying every month from the future months. For reducing home loan interest rate, you should have a shorter tenure of the loan. It will help in reducing the interest amount you have to pay every month along with the principal amount. You should get into the habit of repaying your loan regularly. Initially, you will be paying more interest, and as the years progress, you will be paying it less and paying the principal more. In this way, the loan burden on you keeps on reducing exponentially. You will be able to bring down your total payment. Some banks keep the interest rate fixed, so with them, this strategy may not work. Anyway, you want the burden to be lifted off you. So, you should explore all possibilities to reduce the burden. You may talk to the bank officials too. They may help you make a better decision.
How will your EMI change in the new external benchmark linked lending rate regime?
Many banks have internal teams for risk assessment. Some banks hire outsiders to do the task. The bank will be compelled to modify the risk premium charges if your credit score gets substantially modified. The banks tend to revise interest rates every quarter because they have to be guided by the benchmarks that keep shifting.
