Your home loan EMIs may go up –
The second bi-monthly meeting of the RBI Monetary Policy Committee started on Wednesday. RBI governor Shaktikanta Das is scheduled to announce the Monetary Policy Committee decisions on Friday morning.
Srikanth Subramanian, CEO-designate, Kotak Cherry, said the central bank is expected to hike the policy repo rate by 35 to 50 basis points.
“The upcoming RBI policy is expected to resonate the rate increase action taken by peer central bankers with the consensus between 35-50 bps hike getting acknowledged across the yield curve,” news agency ANI quoted Subramanian as saying.
“Monetary policies are swayed by macro data where inflation and growth are tracked with few high-frequency indicators. Few advanced economies have fallen prey to conflicting indicators and facing the tough task of collaborating them together. Domestically, the cooling of commodities along with crude, good GST numbers, rise in PMI, firm power consumption points towards the resilience of the economy and have provided RBI with a clear guidance to focus on price stability (inflation),” Subramanian added.
HDFC Bank’s chief economist Abheek Barua said the RBI is “likely to take rates above a level deemed ‘neutral’ (which we think is closer to 5.25 per cent) before slowing down or looking at becoming more data dependent in this rate hike cycle”.
“We expect RBI MPC to hike benchmark repo rate by 50 bps as CPI continues to rule above RBIs threshold band,” said Lakshmi Iyer, chief investment officer (debt) and head products, Kotak Mahindra Asset Management Company.
Data analytics firm CareEdge expects RBI to hike the policy interest rate by another 100 basis points in the remainder of the financial year 2022-23. This will take the terminal rate to 5.90 per cent by the end of FY23.
While the current CPI inflation is still around 7 per cent, the easing of many commodity prices is attributed as a major factor of influence towards a lower inflation trajectory by the fourth quarter of FY23.
In its second bi-monthly policy review in June, the RBI hiked the policy repo rate by 50 basis points to 4.90 per cent.
Home loan EMIs likely to go up
If the RBI chooses to hike the policy repo rate on Friday, it will be the third hike in a row. If the repo rate increases, it will lead to a higher EMI for home loan borrowers. When the RBI increases policy repo rate, the default option for banks is to increase the tenure of a loan in a way that the EMIs remain unchanged, but the number of years for payment increases proportionately.
If you have an outstanding home loan of ₹20 lakh for a term of 30 years at a current interest rate of 7.1 per cent from SBI, your EMI will go from ₹13,441 to ₹14,675, a jump of ₹1234, if the SBI home loan interest rate climbs from 7.1 per cent to 8%.
How to reduce higher loan EMIs?
Existing borrowers can use the balance transfer option to reduce their EMIs. This is a service that lets customers transfer their total outstanding loan balance to another bank that gives them lower interest rates on the outstanding loan amount. When the outstanding loan amount is higher, this is the best alternative, but processing fees and other related charges must be considered. The other option is full or partial prepayment, which helps the existing borrowers to reduce their loan burden. This option assists those with enough surplus funds in becoming debt-free sooner, and it has no negative impact on one’s credit score.
New borrowers can choose a loan with a higher down payment to decrease their EMI burden, or a loan with a longer repayment term to reduce the amount owed in monthly installments. Customers who have a solid relationship with their bank can also take out loans through their existing banks, where interest rates may be negotiated. Alternatively, new borrowers can simply look for banks or NBFCs that would offer them lower rates on their preferred loan type.
(With inputs from ANI and Live Mint)