The Reserve Bank of India uses the repo rate to control the supply of money in the economy. In recent times, it has been seen that the RBI has kept its benchmark rate unchanged due to the inflation pressure. However, if the RBI rate keeps the Repo rate consistent, what does it imply for the home loan borrowers? Does it have an effect on the lending rates for the home loan? Also keep in mind that it is very important to have a track record of all the home loan documents and applications at the same time.
What is the repo rate: Repo rate is the rate at which RBI lends funds to the commercial banks in case of shortage of funds. Presently, the RBI’s repo rate stands at 4.40% against the previous rate of 5.15%. The repo rate determined by the RBI affects the rate of borrowing for the common man as well. It may be because banks hesitate to borrow the funds if the repo rate is high and vice-versa. Banks transfer these advantages and disadvantages to the people who borrow money from the bank in the form of home loan etc.
Impact of repo rate on home loan borrowers: The repo rate affects the lending rates for the existing and new borrowers as mentioned below:
- Home loans linked with the external benchmarking: There are multiple banks whose home loan rates are linked with the external benchmarking such as RLLR rates(Repo-linked lending rates). If the RBI keeps the repo rate unchanged, then the rate of borrowing will not change for the borrowers and they have to pay the same EMI. Thus, they may have to repay the loan at the same interest rates unless banks reduce their margins. On the other hand, if the repo rate gets reduced, the home loan rates will also get reduced.
These are some of the banks which are linked with the external benchmarking.
| Banks | Rate of Interest |
| SBI | 7.15% |
| Bank of Baroda | 7.25% |
| ICICI Bank | 8.10% |
| Axis Bank | 8.10% |
| Kotak Bank | 8.60% |
- Home loans linked with MCLR rates: MCLR linked home loan rates change as per the bank internal policy and RBI guidelines. However, the benefits of reduction in MCLR rates can be availed on the reset date of the home loan, which can vary from the bank between 6 months and a year. However, you can decide to switch the home loan to external benchmarking by paying administrative charges. You can do so by transferring the home loan balance to another bank. Before doing that you must check all the guidelines of your current banks as there are specific banks which don’t permit for a home loan balance transfer. Also, the external benchmarking rates like repo rate are volatile and keep on changing every three months. Thus, it would help if you compared the costs of home loan balance transfer and switching to external benchmarking such as RLLR.
These are some of the banks which are linked with the MCLR rates:
| Banks | Rate of Interest | MCLR |
| Standard Chartered Bank | 9.40% | 3 month MCLR |
| RBL bank | 10.45% | 1 year MCLR |
| DCB Bank | 10.24% | 1 year MCLR |
| Yes Bank | 9.85% | 1 year MCLR |
- Home loan rates for new borrowers: As per the revised guidelines, the new home loan rates are linked with the external benchmarking. Thus, if the new borrower takes the home loan, the home loans would be based on the RLLR rates, and if there is no change in RBI repo rate, the borrowers will get the home loan as the previous borrowers of the home loan. They will not get any reduction in the home loan rates if the repo rate remains unchanged during the home loan tenure.
Conclusion: The new borrowers can, however, take home loan subsidies as offered by the government under the Pradhan Mantri Awas Yojana to get the home loan at cheaper rates.
Summary: RBI keeps repo rate unchanged: Here’s what it means for home loan borrowers
The Reserve Bank of India uses the repo rate to control the supply of money in the economy. In recent times, it has been seen that the RBI has kept its benchmark rate unchanged due to the inflation pressure. However, if the RBI rate keeps the Repo rate consistent, what does it imply for the home loan borrowers?
- There are multiple banks whose home loan rates are linked with the external benchmarking such as RLLR rates(Repo-linked lending rates). If the RBI keeps the repo rate unchanged, then the rate of borrowing will not change for the borrowers and they have to pay the same EMI.
- MCLR linked home loan rates change as per the bank internal policy and RBI guidelines. However, the benefits of reduction in MCLR rates can be availed on the reset date of the home loan, which can vary from the bank between 6 months and a year. However, you can decide to switch the home loan to external benchmarking by paying administrative charges. You must however compare the costs of home loan balance transfer and switching to external benchmarking such as RLLR.
- As per the revised guidelines, the new home loan rates are linked with the external benchmarking. Thus, if the new borrower takes the home loan, the home loans would be based on the RLLR rates.