Getting homes – has it become easier or harder over time? Well, the truth is – it has gotten so much easier over time, hasn’t it?
Have you ever wondered why that is? This is because of the ‘easy loan period’ that we are going through today. But, these loans come with something that we have to take up, and that is the interest rates. The interest rates, though, the lower would be better for you.
But what actually happens when the rates go high – is we would have to endure so much more repayment. One of the factors that affect the house loan interest rates is the hikes in the repo rates – that is exactly what we are going to have a discussion about over here.
What is the Meaning of Repo Rate?
Repo rate meaning – the interest rate at which a country’s central bank loans money to commercial banks. The Reserve Bank of India, employs repo rates to regulate liquidity in the economy. The Repo rate is connected to the repurchase option’ or repurchase agreement’ in banking.
Hiked Repo Rates and Home Loan Interest Rates
Leading house loan lenders, such as HDFC and LIC Housing Finance, as well as banks, such as ICICI Bank and Axis Bank, raised home loan rates by 50 basis points within hours of the RBI’s announcement of the repo rate hike. Here are several things borrowers might do to lessen the impact of increased equivalent monthly installments.
Within a few hours of the Reserve Bank of India (RBI) raising its repo rate on September 30, 2022, several banks, including ICICI Bank and Axis Bank, and non-banking housing finance companies, including HDFC Ltd and LIC Housing Finance, raised their home loan rates by nearly the same proportion, effective October 1, 2022.
It should be noted that, contrary to popular belief, the RBI did not maintain interest rates until the holiday season was finished.
HDFC Limited increased its home loan interest rate by 50 basis points. In the last five months, HDFC has initiated seven rate increases.
LIC Housing Finance has also raised the LIC Housing Prime Lending Rate (LHPLR), the benchmark rate to which all of its loans are connected, by 50 basis points (bps).
How is the Society Reacting to the Hiked Up Repo Rates?
Because the contributing variables of an interest rate hike vary for different kinds of borrowers, there is no standard impact on borrowers in the real estate market.
While rate hikes have less of an impact on small-ticket borrowers, those who have taken out large loans and chosen floating interest rates may be in danger. There is clearly a unique justification for the immediate impact on floating-rate borrowers, as they are required to be tied to a benchmark such as the repo rate. The resulting influence on repo rate linked lending rate (RLLR), such as the floating rate, is apparent within a quarter of the change in the benchmark.
When compared to self-occupied and affordable house buyers, investment home buyers prefer larger loan amounts. This is because they intend to use these homes as investment vehicles or perhaps rent them out if they cannot sell them at greater prices in the future.
When investment house buyers have a larger loan amount, rate increases under a variable interest option affect them more. As a result, they will have to pay more interest on their loans as lenders raise interest rates in response to the RBI’s repo rate hike.
As the explanation of rate differentials demonstrates, the self-occupied affordable home buyer with a lesser loan amount is less likely to be harmed by the rate hike.
Interest Rates on Home Loans
The interest rate on house loans from HDFC Limited begins at 8.10% per annum. For salaried individuals, Axis Bank’s home loan interest rate (floating rate) is in the 8.10-8.45 percent range. The effective rate of interest (floating rate) for self-employed individuals is 8.20-8.55 percent.
The adjustable rate of interest for salaried borrowers at ICICI Bank for a house loan of up to Rs. 75 lakh is between 8.1 percent and 8.85 percent. This rate of interest is 8.1-8.95 percent for loans above Rs. 75 lakh. These interest rates apply to loans for home purchases, home interiors, renovations, and home extensions.
So, what can you do now when taking a home loan – are your thoughts pacing? Don’t worry – just read on.
What Do You Need to Do When Taking a Home Loan?
Choosing Fixed Interest Rates
Fixed-rate home loan borrowers are unaffected by interest rate increases because their current interest rates are locked in for a portion or the entire term of their loans. As a result, if you have a fixed-rate loan, there will be no change in your monthly EMIs or payback amount for the time being.
Deposit rates have risen in tandem with borrowing rates. So, those who chose a fixed interest rate choice for assurance have succeeded in avoiding the risk for the time being. To deal with the ongoing inflationary pressure, they can try to save some and earn more from those savings.
The Affordable Home Loans
There are now two concepts in the context of rates chosen by low-income home buyers.
Some small-ticket borrowers with limited discretionary money and little knowledge of financial markets seek to seize the opportunity of a low-interest rate. In the short term, such borrowers benefit from the low-interest rate of a floating option. However, the latest rate hike by the RBI has a direct and negative impact on their financial stability because they now pay significantly more interest as a result of the move.
This is due to the fact that lenders boost their MCLR/PLR in response to increased repo rates.
Borrowers with a superior awareness of how markets work and the luxury of disposable incomes choose fixed-rate loans over variable ones. This is despite the fact that the fixed option’s interest rates are greater than the current floating rate in a low-interest rate regime.
The reasoning stems from their lower appetite for risk linked with variable interest rates over time periods that range from one year to five years, depending on specific requirements and applicants’ financial standing. When taking out mortgages on their properties, the rates may change depending on market conditions. Fixed interest rates, on the other hand, are still predictable, and borrowers can successfully manage their future payments appropriately.
Interest rates and the economy are always going to go up and down. This is exactly why you need to have a look out for every factor out there, and even when the rates are up because of external factors, you would know how to handle it. #KhabarLive #hydnews #hydlive