The Reserve Bank of India (RBI) has once again decided to keep the repo rate unchanged at 6.5% for the 10th consecutive time. This decision will provide a much-needed boost to the Indian housing market, which will sustain the sales momentum during the Diwali season.
While many real estate experts and stakeholders were expecting a repo rate cut this time, this move by the apex bank authority shows that the RBI is taking tough measures to handle the current inflation scenario in India.
From a homebuyer’s perspective, the relatively affordable home loan interest rate regime is likely to continue during the upcoming festive period.
Notably, stable interest rates and a strong economic outlook have kept home buyer sentiments upbeat and demand for luxury residential properties has remained strong this year.
Surprisingly, the Reserve Bank of India has not made any change in the repo rate since February 2023.
In fact, after the recent 50 basis point cut by the US Federal Reserve, everyone’s attention was focused towards the central bank for a possible cut. However, given the ongoing inflationary pressures in the country, it is unlikely that the RBI will cut rates shortly.
No cut in repo rates: What should home buyers do now?
1. Choose a fixed rate home loan
In high interest economic conditions, choosing a fixed rate home loan can be a good decision for you. Fixed rate loans offer a consistent interest rate throughout the loan term, providing stability and predictability in your monthly payments.
Although these loans start at slightly higher rates than floating-rate options, they give you peace of mind by ensuring that your EMIs remain the same.
2. Opt for shorter loan tenure
Shorter loan tenures result in higher monthly EMIs, but they reduce the overall interest cost significantly, making the loan more cost-effective over time.
However, this approach will be beneficial for those who can easily manage higher EMIs and want to repay their home loan more quickly.
3. Negotiate for better deals
If you have maintained a good rapport with your bank, you can easily negotiate more favourable terms and conditions for your next home loan. This may include securing a lower interest rate, more flexible repayment options or lower fees.
Lenders are often willing to offer better terms to customers who have a good repayment history, so it is worth investigating these possibilities.
4. Advance payment
Another effective strategy to manage high interest rates is to pay more down payment when purchasing a home. By contributing more upfront, the total loan amount will be reduced, which subsequently reduces both the monthly EMI and the total interest payable during the loan tenure. Although this approach requires substantial savings, it can substantially reduce long-term financial commitments.
5. Collateral loan
Using your fixed deposits, gold, or mutual funds as collateral can help in financing your property or enabling a larger down payment. This reduces the amount to be borrowed, potentially reducing your monthly EMIs and overall interest burden over time.
6. Prepay
Prepayment can significantly reduce your overall interest costs. You can make prepayment either as a lump sum payment towards the principal amount or as an excess of your normal EMI. By saving money for prepayment, you will be able to take advantage of future rate reductions and pay off your loan faster.
7. Balance Transfer
If you already have a home loan, transferring the existing loan to another lender that may be offering a lower interest rate or perhaps more favorable terms is always advisable.
This may lead to lower monthly EMIs or shorter loan tenure, resulting in overall savings on interest costs. However, it is important to consider any associated fees, such as processing fees, to ensure that the potential savings outweigh the associated expenses.
In short, by implementing these strategies, borrowers can manage their home loan efficiently even in periods of high interest rates. However, it is always important to evaluate your financial situation and choose the option that best matches your specific needs and objectives.
Conclusion
In conclusion, the Reserve Bank of India’s decision to maintain the repo rate at 6.5% for the 10th consecutive time is expected to provide a boost to the Indian housing market.
Homebuyers can consider various strategies to manage their home loans efficiently during periods of high interest rates, such as opting for fixed-rate home loans, choosing shorter loan tenures, negotiating for better terms, making advance payments, using collateral loans, making prepayments, and considering balance transfers.
By carefully evaluating their financial situations, borrowers can navigate high interest rate periods and manage their home loans effectively.