The Reserve Bank of India (RBI) increased the repo rate by 40 basis points to 4.40 percent on Wednesday, up from 4% previously.
Interest rates on home loans are in the spotlight again now because of the increase in repo rates, which some industry experts say may pave the way for rate hikes in coming days. Some banks like ICICI Bank and Bank of Baroda have already increased the interest rates of repo rate linked home loans post the RBI announcement.
More banks are expected to follow suit. The interest rate cycle is well and truly on the way up now. In this light, here is a look at five banks offering the lowest home loan interest rates at present.
What should borrowers do?
Most banks use the repo rate as their external benchmark, a rise in the repo rate will almost certainly result in a rise in lending interest rates. Banks must adjust their external benchmark-based lending interest rates at least once every three months to keep them in line with the external benchmark to which they are tied.
More banks are likely to announce rate hikes soon. The 40 bps hike in the repo rate will lead to higher cost of borrowing for both existing and fresh borrowers. The impact would be faster on those planning to avail home loans or any other loans linked to the external benchmark rates, especially the repo rate.
The interest rates for existing borrowers linked to repo rate or any other interest rate benchmarks, both internal as well as external, will remain the same till the next reset date of their loans. The new interest rate on their reset date will be calculated after factoring in the benchmark rate applicable on the reset date and credit spreads. This new interest rate will then remain in force till the next reset dates of their loans, irrespective of any repo rate changes by the RBI in the interim. The repo rate cut would not impact any loans availed at fixed interest rates.