Home loan is one of the biggest liabilities for the majority of the people who buy houses. However, due to economic slowdown due to Covid-19, interest rate has come down to the lowest level seen in a decade. Bankers opine that this is the right time to give maximum acceleration to home loan repayment.
When the interest rate comes down and EMI remains unchanged then the interest part decreases and principal part of EMI increases. At the same time if one makes more payments towards principal then home loan outstanding comes down at higher speed. Most of the banks’ home loan rates have come down at 6.95 per cent to 8.20 per cent range. Country's largest bank State Bank of India (SBI) offers home loan at 6.95 - 7.50per cent, similarly private bank HDFC Ltd home loan is at 6.95 per cent to 8.20 per cent. Country's biggest home loan agency LIC HFL’s home loan starts at 8.90 per cent onwards.
Vibhaw of SLBC Jharkhand unit said, “As the Reserve Bank of India (RBI) has cut the repo rate by 40 basis points. The repo rate now stands at 4 per cent and reserve repo rate at 3.35 per cent. The EMI of most of the banks have come down.”
“This is the right time to repay bank loans as interest rate is low. Also the EMI will come down,” added Vibhaw. However the SLBC official said that it is a short term benefit which a borrower can get as when the RBI revises the repo rate the interest rate will go up so as the EMI.
Repo rate is the rate at which the central bank of a country (Reserve Bank of India in case of India) lends money to commercial banks in the event of any shortfall of funds.
The low repo rate is mainly for revising the economy as when the interest rate is low there is demand for more home loans. The more demand for home loans will directly affect real estate as there will be demand for cement, steel and other construction materials.
However, bankers opine that despite low repo rate and home loans coming down has not affected the market much. An official at LIC HFL said, “Though we are offering home loans at 6.9 percent onwards, we are not getting many new customers as people are afraid of investing on new projects.”