The Reserve Bank of India's Monetary Policy Committee (MPC) today hiked the key repo rate by 25 basis points (bps) to 6.25 per cent. This means all bank loans are now likely to become more expensive.
Actually, it had already started getting costlier. In the past week alone, SBI, PNB, ICICI Bank and Bank of Baroda hiked up their lending rates (MCLR) by 0.1 per cent. Before that Kotak Mahindra Bank and IDBI Bank had set the ball rolling in anticipation of the MPC's decision.
Here's how your EMI outflow is likely to be affected. Assume you have taken a Rs 20 lakh home loan, which currently carries an interest rate of 8.4 per cent. That means that your EMI at present is Rs 1.68 lakh. But if your bank hikes its interest rate by 25 bps to pass on the burden of the repo rate hike, at 8.65 per cent interest rate your EMI will go up by Rs 5,000 to Rs 1.73 lakh. And the bigger the loan amount, the harder the impact. A home loan of Rs 2 crore will see the EMI burden shoot up by Rs 50,000 with just a 25 bps hike.
Borrowers need to pay attention to the type of loan they take as the RBI's announcement is likely to affect their EMIs, according to experts. "If you are looking to buy a property with a home loan, you will have to choose between a Fixed Rate and Floating Rate of interest. Fixed rate loans may have a fixed interest rate for part or whole of the loan tenure. If it's part-fixed, the loan switches to a floating rate after the reset period. The floating rate varies with the change in the market scenario and is usually lower than the fixed rates," Bank Bazaar CEO Adhil Shetty said.
According to Ramesh Nair, CEO & Country Head, JLL India, though RBI's repo rate hike may seem to dampen sentiments in the market, in terms of real estate there will likely be little or no impact. "Though for some home buyers looking towards making a very low ticket size purchase decision, there may be some tentativeness in the decision making, overall we will see minimal impact on the end-user in the housing sector," he said, adding, "As almost all home loans these days are on floating rates, the rise and fall in home loan rates does not impact the performance of residential real estate sector much and tends to balance each other out over long term."