A Home Loan at low interest rates is an idea that would definitely appeal to you. It is possible for you to enjoy the benefits of minimal home loan interest rates if you are aware of repo rates. By definition, a repo rate is the rate at which commercial banks borrow from the central bank. A cut in this repo rate would mean significant benefits if you are looking to take a home loan. You can expect the following things from a cut in the repo rate for home loan interest rates:
• More funds for banks- Repo rate is the interest rate that the central bank charges commercial banks for lending funds. When there is a cut in this rate, commercial banks will find it preferable to borrow more from the central bank. This in turn will allow the banks to increase their credit creation market, that is, to give out more loans to their customers.
• Reduced EMI for home loans- With a cut in repo rate banks usually pass on the benefits of lower interest rates to the consumers. They do this by giving their customers cheaper loans. In case of big ticket loans like home loans this will mean reduction in EMI.
• Reduced cost of credit- A cut in the repo rate also means that the banks are most likely to provide more number of big ticket loans to their customers. This will be beneficial for you as it will result in reduced cost of credit for home loans.
• Option of switch over to MCLR rate regime- For base rate borrowers, that is, those who have borrowed from banks at the lowest available rates, a cut in repo rate can provide added benefits. It gives them the option to switch over to MCLR (marginal cost of fund based lending rate) rate regime. MCLR rate regime offers the customer an option to reset the interest rate once every year. In this way they can take advantage of lower home loan interest rates.
So a cut in the repo rate, that is, the interest rate decided by the central bank for lending funds to the commercial banks, will provide the commercial banks with an initiative to borrow more from the central bank. Subsequently it will allow the banks to expand their credit creation market. This in turn will lead to the banks providing home loans to their customers at reduced cost of credit and will also bring forth a reduction in EMI for home loans in case of new customers. So if you are looking to take up a home loan or you already have one, keeping an eye on the current repo rate scenario may prove beneficial for you.
• More funds for banks- Repo rate is the interest rate that the central bank charges commercial banks for lending funds. When there is a cut in this rate, commercial banks will find it preferable to borrow more from the central bank. This in turn will allow the banks to increase their credit creation market, that is, to give out more loans to their customers.
• Reduced EMI for home loans- With a cut in repo rate banks usually pass on the benefits of lower interest rates to the consumers. They do this by giving their customers cheaper loans. In case of big ticket loans like home loans this will mean reduction in EMI.
• Reduced cost of credit- A cut in the repo rate also means that the banks are most likely to provide more number of big ticket loans to their customers. This will be beneficial for you as it will result in reduced cost of credit for home loans.
• Option of switch over to MCLR rate regime- For base rate borrowers, that is, those who have borrowed from banks at the lowest available rates, a cut in repo rate can provide added benefits. It gives them the option to switch over to MCLR (marginal cost of fund based lending rate) rate regime. MCLR rate regime offers the customer an option to reset the interest rate once every year. In this way they can take advantage of lower home loan interest rates.
So a cut in the repo rate, that is, the interest rate decided by the central bank for lending funds to the commercial banks, will provide the commercial banks with an initiative to borrow more from the central bank. Subsequently it will allow the banks to expand their credit creation market. This in turn will lead to the banks providing home loans to their customers at reduced cost of credit and will also bring forth a reduction in EMI for home loans in case of new customers. So if you are looking to take up a home loan or you already have one, keeping an eye on the current repo rate scenario may prove beneficial for you.
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