4 options to mitigate the impact of rising home loan interest rates - Importance of repo rate (2024)

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Importance of repo rate What is Repo rate 4 options to mitigate the impact of rising interest rates SBI loan rates Is EBLR linked to the repo rate?

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4 options to mitigate the impact of rising home loan interest rates - Importance of repo rate (1)

Interest rates on home loans are often linked with the central bank's repo rate. Banks often raise the interest rates on all of their loans, including house loans, in response to changes in the repo rate.

If the benchmark rate (REPO) changes, the interest rate on the home and home related loan account will likewise change. An rise in the Repo Rate will result in an increase in the interest rate on the home linked loan.

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4 options to mitigate the impact of rising home loan interest rates - Importance of repo rate (2)

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What is Repo rate

The repo rate is the interest rate at which a country's central bank (Reserve Bank of India) loans money to commercial banks in the event of a funding shortage. Monetary authorities utilise the repo rate to limit inflation. The Reserve Bank of India (RBI), India's central bank, uses repo rates to control liquidity in the economy.

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4 options to mitigate the impact of rising home loan interest rates - Importance of repo rate (3)

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4 options to mitigate the impact of rising interest rates

According to the SBI home loan website, the customer will have following options to negate the effect of rise in Rate of Interest:

a. To pay lumpsum amount to continue with existing EMI and Tenor.
b. To increase the Loan Tenor (within permissible tenor & Age limit).
c. To increase the EMI to pay the Loan within the existing tenor.
d. Combination of any of the above.

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See Also
Understanding the federal funds rate: What it is and how it affects your wallet

4 options to mitigate the impact of rising home loan interest rates - Importance of repo rate (4)

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SBI loan rates

SBI has hiked its base rate to 10.25% from earlier 10.10%. The State Bank of India’s (SBI) has hiked its marginal cost of funds-based lending rate (MCLR) and base rate. The new rates are effective from December 15, 2023, according to the SBI website. The bank has also hiked Benchmark Prime Lending Rate (BPLR) by 25 bps to 15.00% per annum from earlier 14.85% effective from December 15, 2023.

The Reserve Bank of India's Monetary Policy Committee decided to keep the repo rate at 6.5 percent for the fifth time in a row.

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4 options to mitigate the impact of rising home loan interest rates - Importance of repo rate (5)

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Is EBLR linked to the repo rate?

Borrowers with EBLR (external benchmark linked lending rate) hoe loans will gain the most quickly from a drop in home loan interest rate. The loans linked to the repo rate will profit directly from this: the drop in interest rate will be equivalent to the drop in repo rate.

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4 options to mitigate the impact of rising home loan interest rates - Importance of repo rate (2024)
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