With the RBI lowering the repo rate by 25 basis points, home loan borrowers stand to benefit from reduced EMIs, making homeownership more affordable

Any time is a good time when it comes to buying a home. However, the recent repo rate cuts signal a lowering of interest rates in the future, thus, hinting at a possibly more stable economy and increased scope for real-estate investment. Home buyers in India are wondering whether they should consider purchasing a home following the recent repo rate cuts by the Reserve Bank of India (RBI).

The country’s central bank recently lowered the repo rates by 25 bps from 6.5 per cent to 6.25 per cent.

This marks the first rate cut in five years by the Monetary Policy Committee (MPC), which can result in significant savings for home loan borrowers.

Small and steady savings on EMIs

Home loan applicants stand to benefit from RBI’s recent decision, as it will help them service loans at a lower cost.

This reduction in EMIs would also make homeownership more affordable for potential buyers. Let’s illustrate this with an example. Suppose that you took a 20-year home loan of Rs 20 lakhs at an 8.75% interest rate. Your current monthly EMI would be somewhere around  Rs 17,674.

With the new rate, your monthly EMI drops to Rs 17,356, resulting in a total savings of Rs. 76,259.

If you maintain your current EMI payments, you could pay off your loan 5 months earlier than originally planned. For those who are hesitant to enter the housing market due to high property prices and interest rates, this may be a good opportunity to take advantage of reduced borrowing costs. However, it is imperative to consider other factors such as market trends, location, and personal financial stability before making a decision.

Way to loan refinancing options

Borrowers might feel that the savings from reduced repo rates are minimal when it comes to monthly EMI outgoings. As the saying goes, “A penny saved is a penny earned,” and even a small saving on EMIs could contribute to larger savings in the long term.

Additionally, borrowers with strong credit scores can take advantage of competitive refinance options. Since they are considered low-risk by lenders, they are most likely to secure lower interest rates on refinanced loans.

Win for the housing sector

The RBI aims to stimulate the economy by making home financing more accessible. This can lead to increased demand in the housing sector, especially in areas where property prices have been sharply increasing due to infrastructure development and improved amenities. The reduction in the cost of borrowing can help mitigate some pressure from skyrocketing housing.

(The writer is CEO& Co-Founder, BASIC Home Loan; views are personal)