Loan EMIs May be Reduced as RBI has Cut Down the Repo Rate

Home-Loan-EMIs

Just days before the Lok Sabha (General Elections) Elections 2019, India’s Central Bank, the Reserve Bank of India (RBI) has announced a rate cut.

Yes, the RBI has announced a rate cut for all banks which may directly impact the middle class. It will lead to their lowering of home loan EMIs and other EMIs.

The only condition is that it may be possible only when the banks pass the benefits to its customers. Overall, the industry has reacted positively to this news. Borrowers are also expecting to pay reduced home loan EMIs leading to savings.

The Repo Rate has been reduced by 25 basis points. It means a reduction of 0.25%. Hence, the new repo rate is now 6%.

What does the RBI repo rate cut mean?

Repo rate is the interest rate that the RBI charges from commercial banks while lending them short-term money. On the other hand, the reverse repo rate is the interest rate at which the Central Bank borrows money from commercial banks.

You should know that the reverse repo rate has also been cut by 25 basis points. It now stands at 5.75% from the earlier 6%.

The deepest effect of this slashed repo rate means that banks would be now able to lend money at an affordable rate from RBI. As a result, it can be passed on to the customer at a lower home loan interest rate or other loan rates.

If the banks start exercising the newly cut repo rate on the current loans availed by customers, then every paid EMI can become lower or affordable. It means overall loans of all types becoming economical.

Most of the loan types that come under this include auto loans, home loans, personal loans and more.

Other ways to reduce your home loan EMIs

You can also use some other tricks to reduce your existing home loan EMIs such as:

  1. Make prepayments

You can use the performance bonus that you receive per year to make some prepayment towards the existing loan principal. It will lead to the lowering of the loan principal and home loan interest. In turn, you will end up paying reduced EMI, and your loan will be repaid earlier than the scheduled tenor. Most of the leading banks and NBFCs don’t charge any amount for making prepayments.

  1. Pay 1-2 extra home loan EMIs

If you save enough in a year, then you can use this amount towards paying 1-2 extra EMIs annually. Doing that per year will help you pay lower EMIs, and your loan account will be closed earlier.

  1. Put down a large down payment

Most of the banks sanction only 80-85% of the value of a home that you buy as the loan amount. The remaining 15-20% needs to be arranged by a borrower known as the down payment. Thus, the larger is your down payment; the reduced will be loan principal and interest rates. It means that you will be able to pay lower EMIs.

Therefore, if you don’t want to make your housing finance cost affect the monthly outlays, it is good to pay a higher down payment at the time of availing the loan.

Richa Sharma is a freelance author and writes for a variety of online publications. She actively writes blogs and articles and very fond of writing content on different trendy topicss related to Education, training,resources,health and technology.