Home loan EMI may rise by 2-4% as RBI once again hikes repo rate: Experts

New Delhi: The Reserve Bank of India (RBI) has announced yet another 25 basis point (bps) hike in the repo rate, at which the central bank lends money to commercial banks, to 6.60 percent. This is the sixth consecutive hike by the RBI and will lead to a rise in the equated monthly instalments (EMIs) of home loans by 2-4 percent, experts believe. Those whose home loans are linked to external benchmarks like the repo rate will be majorly impacted. Why are home loans impacted by RBI’s decision? Generally, when RBI hikes the repo rate, it increases the cost of funds for banks. Banks will have to pay more for the money they borrow from RBI. Consequently, banks pass on the cost to borrowers by increasing their loan interest rates, making EMIs costlier. As a result, new and existing borrowers witness increased home loan interest rates. How much increase can we expect in home loan rates? Experts believe that the hike will be passed on to home loan borrowers. As a result, home loans will get dearer. V Swaminathan, executive chairman at Andromeda Sales and Apnapaisa.com said that rate hike of 25 bps will make EMIs expensive by approximately 2-4npercent. Repo rate is directly linked to loan rates offered by lenders so an increase in the repo will increase the borrowing cost and vice-versa. “If we take into consideration the current increase of 25 bps, the EMI for a 20-year home loan of Rs 70 lakh at 9.25 percent was Rs 64,111. But when we factor in the 25 bps, the interest rate becomes 9.50 percent, thereby increasing the EMI to Rs 65,249. The borrower of such a loan will have to pay an extra amount of Rs 1,138 each month,” he said. “However, in the last three quarters, the repo rate has been increased by 250 basis points. So, the EMI for a 20-year home loan taken in May 2022 of Rs 70 lakh at 7 percent was Rs 54,271. But when we factor in the 250-bps hike rate since May, the interest rate becomes 9.50 percent, increasing the EMI to Rs 65,249. The borrower of such a loan will have to pay an extra amount of INR 10, 978 each month,” Swaminathan added. Shishir Baijal, Chairman & Managing Director at Knight Frank India believes that borrowing costs could be expensive by another 10 – 15 bps, on an immediate basis post today’s rate hike. “Since the beginning of the rate hike cycle, which began in May 2022, the RBI has hiked its repo rate by 250 bps. With an MCLR rate of 8.4 percent, about 60 percent of the repo rate hike, so far, has already transmitted into the lending rates. Thus, the borrowing costs have significantly increased across the product categories including the housing sector,” he said. So, what should borrowers do? Borrowers can prioritise pre-payments to control their loan interest. This will help them in reducing their loan tenures and EMIs. They will either have to shell out extra money to repay their loans or will have to extend the loan tenure. Will home demand also see a fall? The impact of interest rate hike on the housing sector has been limited. The Knight Frank affordability index has deteriorated marginally by an average 1.4 percent over the last year. Demand for home loans has remained strong during the last year, as seen in 16 percent growth in December 2022. Knight Frank hopes that this rate hike will not adversely impact consumer sentiments towards home purchases in the coming financial year. Read all the Latest News , Trending News ,  Cricket News , Bollywood News , India News and Entertainment News here. Follow us on Facebook, Twitter and Instagram.