4 options to mitigate the impact of rising home loan interest rates

The repo rate is the interest rate at which a country’s central bank (Reserve Bank of India) loans money to commercial banks in the event of a funding shortage. Monetary authorities utilise the repo rate to limit inflation. The Reserve Bank of India (RBI), India’s central bank, uses repo rates to control liquidity in the economy.

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According to the SBI home loan website, the customer will have following options to negate the effect of rise in Rate of Interest:

a. To pay lumpsum amount to continue with existing EMI and Tenor.
b. To increase the Loan Tenor (within permissible tenor & Age limit).
c. To increase the EMI to pay the Loan within the existing tenor.
d. Combination of any of the above.

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SBI has hiked its base rate to 10.25% from earlier 10.10%. The State Bank of India’s (SBI) has hiked its marginal cost of funds-based lending rate (MCLR) and base rate. The new rates are effective from December 15, 2023, according to the SBI website. The bank has also hiked Benchmark Prime Lending Rate (BPLR) by 25 bps to 15.00% per annum from earlier 14.85% effective from December 15, 2023.

The Reserve Bank of India’s Monetary Policy Committee decided to keep the repo rate at 6.5 percent for the fifth time in a row.

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Borrowers with EBLR (external benchmark linked lending rate) hoe loans will gain the most quickly from a drop in home loan interest rate. The loans linked to the repo rate will profit directly from this: the drop in interest rate will be equivalent to the drop in repo rate.

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