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RBI raises the repo rate once more, raising the cost of mortgage loans

RBI raises the repo rate once more, raising the cost of mortgage loans

The repo rate was raised by 35 basis points by the Reserve Bank of India (RBI) at its review meeting on December 7, 2022. It is the sixth straight increase since May 2022 in the face of growing inflation. In 2022, the RBI raised the repo rate by a total of 225 basis points. How will this affect potential homebuyers? What interest rates do various banks now offer? Find out now!

The Reserve Bank of India (RBI) has announced many increases to the repo rate, the rate at which it loans money to banks, during 2022. It is hardly unexpected that the current repo rate is 6.25 percent after five revisions this year since May 2022. The recent 35 basis point increase is another action taken by the central bank to balance out the growing inflation. But the change is also anticipated to result in increases in the interest rates that banks charge for house loans, which would have an effect on the average person's ability to purchase a home.

With effect from January 3, 2023, the Indian Bank changed the Marginal Cost of Funds Based Lending Rate (MCLR) by 20–25 basis points across tenors.

Hikes announced by banks in December 2022

For all tenors starting on December 1, 2022, Punjab National Bank (PNB), Bank of India, and ICICI Bank raised their MCLR by five basis points, 25 basis points, and 10 basis points, respectively, in anticipation of the news. The one-year tenor was raised by 20 basis points by Bank of India, moving from 7.95 percent to 8.15 percent. Additionally, the Repo Based Lending Rate (RBLR) was increased to 9.10 percent with effect from December 7, 2022. Additionally, starting on December 7, 2022, HDFC Bank has introduced MCLR modifications for all tenors. The Retail Prime Lending Rate (RPLR) of HDFC Bank has gone increased by 35 basis points to 8.65 percent as of December 20, 2022. Borrowers with credit scores of at least 800 can obtain house loans from the bank at this rate.

What is External Benchmark Lending Rate (EBLR)?

The external benchmark lending rate (EBLR) is the lowest interest rate that banks will set on loans they make. It is based on outside standards, such the repo rate. The standard is established for loans with fluctuating interest rates.

What is Repo Linked Lending Rate (RLLR)?

The repo linked lending rate (RLLR), which is dependent on the repo rate set by the RBI, is a lending rate. The RLLR is directly impacted by the change in repo rate. If a loan is based on RLLR, the floating interest rate will change according to changes in the repo rate.

What is MCLR and its impact on your home loan EMI?

Since the MCLR's debut in 2016, the RBI's interest rate cuts have been discussed in the media. Here is a brief explanation of MCLR and how it affects EMI.

The change will increase the Equated Monthly Instalments (EMI) on a variety of loans, including personal, vehicle, and house loans. It's also anticipated that other banks would do the same.

The minimal interest rate a bank must charge on a loan is known as the "MCLR," or benchmark interest rate. To maintain uniformity and better pricing for customers, the RBI set this in 2016.

Updated MCLR rates across banks

 Bank

 Tenor

 Old rate

 New rate

 SBI

 Overnight

 7.60%

 7.60%

 

 One month

 7.60%

 7.75%

 

 Three months

 7.60%

 7.75%

 

 Six months

 7.90%

 8.05%

 

 One year

 7.95%

 8.05%

 

 Two years

 8.15%

 8.25%

 

 Three years

 8.25%

 8.35%

 Bank of Baroda

 Overnight

 6.80%

 6.85%

 

 One month

 7.20%

 7.40%

 

 Three months

 7.45%

 7.50%

 

 Six months

 7.55%

 7.65%

 

 One year

 7.70%

 7.80%

 Kotak Mahindra

 Overnight

 6.65%

 7.30%

 

 One month

 6.90%

 7.55%

 

 Three months

 6.95%

 7.65%

 

 Six months

 7.25%

 7.90%

 

 One year

 7.40%

 8.05%

 

 Two years

 7.70%

 8.35%

 

 Three years

 7.90%

 8.55%

 Axis

 Overnight

 7.15%

 7.75%

 

 One month

 7.90%

 8.15%

 

 Three months

 7.95%

 8.20%

 

 Six months

 8.05%

 8.30%

 

 One year

 8.10%

 8.35%

 

 Two years

 8.20%

 8.45%

 

 Three years

 8.25%

 8.50%

 HDFC

 Overnight

 8.20%

 8.30%

 

 One month

 8.25%

 8.30%

 

 Three months

 8.25%

 8.35%

 

 Six months

 8.35%

 8.45%

 

 One year

 8.10%

 8.60%

 

 Two years

 8.60%

 8.70%

 

 Three years

 8.70%

 8.80%

 Punjab National Bank

 Overnight

 7.40%

 7.45%

 

 One month

 7.45%

 7.50%

 

 Three months

 7.55%

 7.60%

 

 Six months

 7.75%

 7.80%

 

 One year

 8.05%

 8.10%

 

 Three years

 8.35%

 8.40%

According to the tenors, which range from overnight to three years, the MCLR varies. Both current and new loan borrowers will be subject to the MCLR modification.

Will rising interest rates deter people from buying homes?

According to real estate specialists, an increase in loan rates will disrupt the market, especially for homebuyers. The combination of this and builders' increased use of units in new housing societies as a result of rising raw material costs might further erode consumer confidence. The desire for house ownership may short-term decline. To offset the impact of the rise in house financing and new home expenses, however, it will mostly depend on State governments' decisions to extend or give some concessions on stamp duty and registration charges.

In recent months, the National Capital Region (NCR) has seen a 10% increase in home prices due to the rise in the price of raw materials.

Frequently Asked Questions

What additional workload might loan recipients anticipate?

Borrowers' EMI payments are affected by changes in the MCLR; as a result, an increase in basis points will result in higher EMI interest payments.

Will existing home loan takers be impacted as well?

Existing borrowers of house loans would be impacted since, in accordance with RBI requirements, all loans obtained after April 1, 2016, conform with the MCLR norms. However, it shouldn't have an effect on applicants for fixed-rate mortgages.

Will borrowers who choose fixed interest rates for their loans see a rise in their EMIs?

No, the MCLR is not revised for borrowers who chose fixed interest rates.

Will loan takers have an option to increase tenure instead of monthly instalments?

Banks may lengthen loan terms in order to maintain the same EMI payment. The same might not be achievable with house loans, though, given that they often have longer terms than personal and vehicle loans.

Why did the banks raise interest rates?

According to experts, the MCLR modification is a strategy for combating economic inflation and points to future increases in lending rates.

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