As was expected, the RBI’s double hike, in CRR and repo rate, is going to percolate down to the consumers. However, this might happen sooner than people would anticipate it. As soon as Wednesday, bankers were meeting to decide on their banks’ stand on this new RBI move. On Tuesday night, the central bank, had hiked the repo rate and the CRR by 50 basis points. This will have an effect on every type of loan, but will be felt mostly in the home loan segment.
All those who are looking to but a new house or are in the process of repaying a home loan, would not be amused at the new RBI initiative. Home loan are bound to get more expensive, as most banks are expected to pass on the higher rates to their customers.
However, it’s not only those who are going to purchase a new home loan who should worry, but also those who own home loans on a floating rate basis. The problem for the latter had already started when a fortnight back RBI had hiked the repo rate by 0.5%, however, this new development would surely worsen that problem.
If for instance, a customer had taken a loan of Rs. 20 lakh for 20 years on a floating rate in 2003, on an interest rate of 7%. At present, the interest rate stands at 10.5%, which would see his EMI rise from Rs 15,500 to over Rs 19,900. However, now if the interest rate is hiked by another 0.50 %, his EMI would surely cross Rs 20,000 a month.
However, that is no reason to favour a fixed rate loan. They come with their own drawbacks. A fixed rate loan comes with a 2% premium over floating rates, which is steep.
Consumers can still do their part, by periodically following the present rate of interest being offered by the banks. They must ensure that the bank is not charging a rate higher than that charged for new loans. Banks, on the other hand, should suggest longer tenures to younger homebuyers.
Several bankers agree that these are tough times to buy a house and more so if one has to take a loan for it. However, if a customer is looking to take a new loan, then he should consider keeping a margin for higher EMIs in the future. Also, if one has already taken a loan, then he should review his plan every six months.