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Repo rate increase set to make home loans more expensive


Repo rate increase set to make home loans more expensive

Home loans will now become more expensive with the RBI (Reserve Bank of India) increasing repo rates again under its bi-monthly monetary policy review. A hike in the repo rate has been announced to the tune of 25 basis points and the repo rate is now at 6.50%. One basis point equates to 1/100th of a percentage. The last policy review also led to the key policy rate being increased by 25 basis points after 4 ½ years.

This is the rate at which money is lent by the apex bank to other Indian banks. The reverse repo rate has also been increased by the RBI and is at 6.25%. This is the rate at which money is lent to the RBI by the banks. The repo rate increase will affect home loan customers since banks will be increasing interest rates soon. A repo rate hike indicates an increase in the MCLR (marginal cost of funds based lending rate) of banks which have already been raising MCLR since the beginning of 2018 itself.

Already, Kotak Mahindra Bank, Union Bank of India and Karnataka Bank have increased the MCLR to the tune of 5-10 basis points. As per the directive of the RBI, all loans that are disbursed post the 1st of April, 2016, should be tied to the MCLR. Banks can charge an added mark-up over and above this MCLR. However, the lending rate cannot be lower than this benchmark. In case you plan to take a home loan, you should get on with it right away since the interest rates are projected to rise further in the future. Banks have already commenced increasing interest rates on home loans and even ICICI Bank and SBI increased their MCLR before the last monetary policy review meeting in June 2018.

You can check out the PMAY (Pradhan Mantri Awas Yojana) which offers interest subsidies based on your income level. To get this benefit, you have to apply for a home loan by the 31st of March, 2019.



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