Home Loan EMIs to Stay High as RBI Keeps Repo Rate Unchanged at 6.5%

Home Loan: RBI MPC keeps repo rate at 6.50% on Oct 9, 2024. So, no immediate impact on real estate or home loan EMIs. Since repo rate remains unchanged, banks won’t change their lending rates soon, so your EMI will remain the same.

RBI has announced a neutral policy stance from earlier accommodative. RBI Governor Shaktikanta Das-headed six-member MPC decision was announced today.

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Repo rate set by RBI has a big impact on home loan rates in India.

Will Home Loan Interest Rates Increase or Decrease?

Experts said RBI’s decision to keep repo rate unchanged has big implications for home loan market.

EMIs remain manageable

Yagnik said this consistency is more important as we are entering the festive season which is the peak season for home buying.

Manju Yagnik, Vice Chairperson of Nahar Group and Senior Vice President of NAREDCO Maharashtra said, “The RBI’s decision to maintain the repo rate at 6.5% represents a significant positive step for the real estate sector, providing essential stability amid ongoing global economic uncertainties.”

By keeping borrowing costs stable, EMIs are manageable, so potential homebuyers can invest in property, especially in affordable segment, Yagnik added.

Also, this stability will benefit developers by improving cash flow and reducing borrowing costs for ongoing projects.

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Here’s how a change in repo rate impacts home loans:

Impact on Interest Rates:

Repo Rate Cut: When RBI cuts repo rate, borrowing from the central bank becomes cheaper for commercial banks. Banks then reduce the interest rates on loans, including home loans. This makes homeownership more affordable for borrowers as lower interest rates mean lower EMIs (Equal Monthly Instalments).

Repo Rate Hike: Conversely, when RBI increases repo rate, borrowing costs for banks go up. To maintain profitability, banks increase their lending rates, including home loans. This means higher EMIs for existing borrowers with floating rate loans and higher interest rates for new home loan applicants.

Impact on Existing Borrowers:

Floating Rate Loans: Repo rate changes have an immediate impact on borrowers with floating rate home loans which are the most common in India. Their interest rates are directly linked to repo rate so any change in repo rate is reflected in their EMIs.

Fixed Rate Loans: Borrowers with fixed rate home loans are not affected by repo rate changes immediately. Their interest rate is locked for a specific period (usually 1-5 years). But once the fixed rate period ends, their interest rate will be reset as per the prevailing repo rate at that time.

Though repo rate has been stable for some time, a rate change by the central bank in next 6-12 months cannot be ruled out.

Unchanged repo rate and rate cuts in upcoming MPC meetings are good news for home loan borrowers, so it’s a good time to buy home and for existing borrowers to prepay and reduce their burden.

Interest rates make a big difference in real estate demand. Lower interest rates mean borrowing is cheaper and that can drive up prices. Higher interest rates mean demand goes down and prices soften.

One of the main objectives of RBI’s monetary policy is to control inflation and keep it within a range. Right now inflation (especially food inflation) is above RBI’s target of 4%. Cutting the repo rate can add to inflation in the economy.

Growth will happen with a rate cut but RBI is choosing to control inflation first. They think current rate will manage inflation and some growth will happen.

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