RBI MPC meeting December 2022: Reserve Bank of India ,reserve Bank of India) has increased its December repo rate by 35 basis points to 6.25 per cent monetary policy committee (MPC) Meetings So far in FY23, the MPC has increased the repo rate by 190 bps: 40 bps in May and 50 bps each in June, August and September. The latest increase in repo rates will impact existing and new retail loan borrowers with floating interest rates.
Cyrus Modi, managing partner, Viceroy Properties, said, “This rate hike could have a negative impact on home sales. However, this seems unlikely considering how strong traction we are seeing, as most buyers are looking for self-use and not investment. Going forward, we expect demand from projects developed by reputed names to continue to drive strong demand with pricing power.”
RBI hikes repo rate: What it means for borrowers
Repo rate is the rate at which commercial banks borrow money from the Reserve Bank of India. If the central bank increases the repo rate, the cost of borrowing by banks for retail and other loans also increases.
Fixed-rate loans, such as personal loans, have interest rates that remain the same throughout the term. However, some retail loans including home loans and auto loans are linked to an external benchmark set by the Reserve Bank of India. Most banks and non-banking financial companies (NBFCs) have linked their lending rates to the repo rate set by the central bank. Therefore, when the repo rate increases, the Repo Rate Linked Lending Rate (RLLR) of the banks also increases.
Who will be affected?
Atul Monga, CEO and co-founder, Basic Home Loans, said: “The increase in interest rates will be felt especially by new borrowers, existing borrowers will generally not be affected as the rate change will not refer them as it is a future borrowing.” related to.”
What should home loan borrowers do now?
To mitigate the impact of rising interest rates, existing home loan borrowers can either defer their Equated Monthly Installments (EMIs) or defer their loan tenure. Alternatively, to save on rising interest cost, borrowers can consider the prepayment option. Monga explained that “it is still advisable to consider various repayment strategies to mitigate the impact of this rate hike. This may include balance transfer of the home loan or making additional payments, if possible, in such a scenario, the borrower’s Increased control over interest rates and economic stability will increase.”
old debtor
Naveen Kukreja – CEO & Co-Founder, Paisabazaar, said: “Existing home loan borrowers should opt for EMI enhancement option with the consent of their lenders when their interest rates go up. On opting for EMI enhancement option The interest cost will be lower as compared to the extension option. Financially constrained home loan borrowers can opt for extension if they want their EMIs to remain the same.”
Existing home loan borrowers who have sufficient surplus can also opt for prepayment to mitigate the impact of rising home loan rates. They should preferably opt for reduction in tenure to generate higher savings in interest cost.
new borrowers
Those planning to take a home loan should not take their home buying decision in time based on the trend of policy rate fluctuations. Since home loans are generally long-term loans, the home loan borrower is exposed to several ups and downs in the interest rate cycle during the tenure of his loan.
“New home loan borrowers with restricted liquidity can opt for the Home Saver option, a home loan variant, branded as Home Advantage, MaxGain, MaxSaver, etc. Under this facility, lenders open an overdraft account, Savings or current account for home loan borrowers in the form. This overdraft account can be used by borrowers to park their surpluses and withdraw from it as per their financial requirements. Calculating the interest component of home loan outstanding home The amount kept in the overdraft account is deducted from the loan amount. Thus, this facility allows home loan borrowers to get the benefit of prepayment without sacrificing their liquidity,” Kukreja.
Rate-hike likely to create short-term turbulence in housing demand
Ramani Shastri – Chairman & MD, Sterling Developers believes that frequent rate hikes could lead to short-term turbulence in overall housing demand at a time when buyers are optimistic about taking a home buying decision and this could increase the overall acquisition cost of buyers. Can The real estate sector had started witnessing a gradual recovery in key property markets, mainly driven by end users, however, repeated rate hikes could hit the interest rate-sensitive sector. Low interest rates have been the biggest factor in the revival of real estate demand over the past few years and hence a rate hike would mean a hindrance in affordability. However, there is a positive sentiment, as the affordability and disposable income of new-age homebuyers is much better than in the past. Despite the headwinds, we are still optimistic as there is a huge population base and a lot of demand from first time home buyers. Real estate is certainly one of the best avenues to invest in and looking ahead, we are confident that the markets will witness sustained growth in the next few years.
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