The Reserve Bank of India (RBI) is the central bank in India responsible for setting monetary policy. The RBI, commonly regarded as the monetary caretaker of India, plays a pivotal role in shaping the economic landscape of the nation. Repo rate is one of its top-notch policy tools used to regulate the financial ecosystem by impacting the cost of borrowing money. Its rise can have a cascading effect on home buyers, who end up bearing the brunt in terms of loan repayment. Repo rate impacts home loans significantly, and every rise in repo rate can lead to an increase in the cost of borrowing money. In this engaging discourse, we will explore the magnanimous impact of the repo rate on home loans and offer some kick-ass tips to cut down their existing debts.
The impact of the rise of repo rate on home buyers:
It goes without saying that the repo rate has a direct impact on the interest rates charged by banks on loans. As a result, when the repo rate spikes, home loan interest rates also hit the roof. Unfortunately, for homebuyers, this translates into expensive borrowing costs, rendering them shell out more bucks in interest. For example, if the Repo Rate Increased from 5% to 6%, a person with a home loan of Rs. 50 lakhs for a tenure of 20 years at an interest rate of 8% would see their EMI increase by Rs. 3,316 per month.
Strategies and tips to help home buyers:
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Make additional payments:
One way for home buyers to save money on their home loans is by making additional payments. By paying more than their required EMI amount, they can reduce the principal amount and thus save on interest payments. For example, if a person with a home loan of Rs. 50 lakhs for a tenure of 20 years at an interest rate of 8%, pay an additional Rs. 10,000 each year towards the principal amount, they will save approximately Rs. 4 lakhs in interest payments and reduce their loan tenure by almost 2 years.
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Increase your EMI:
Another way to save money on a home loan is to increase the EMI amount. By doing this, the principal amount is reduced faster, and therefore interest payments are reduced as well. For example, if a person with a home loan of Rs. 50 lakhs for a tenure of 20 years at an interest rate of 8% increases their EMI by just Rs. 1,000 per month, they will save approximately Rs. 2 lakhs in interest payments and reduce their loan tenure by almost a year.
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Refinance your loan:
Re-financing is an alternative that’s available to home buyers who aspire to optimize their savings on a home loan. This involves transferring the home loan to a new bank or financial institution that provides a reduced interest rate. By doing this, the borrower can significantly reduce their interest payments over the life of the loan. For example, if a person with a home loan of Rs. 50 lakhs for a tenure of 20 years at an interest rate of 8%, switch to a new bank offering an interest rate of 7%. As a result, they will save approximately Rs. 6 lakhs in interest payments over the entire loan tenure.
The rise in the repo rate can have a significant impact on home buyers and their loans. Understand how the rise of the Repo Rate Impacts home buyers & their loans. Learn strategies to save money on existing loans & become debt-free faster. However, there are ways for borrowers to mitigate the impact and save money on their loans. These strategies can help homeowners become debt-free much faster. As the saying goes, “A penny saved is a penny earned.” So, adopt these tips and start saving today!