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Home loan interest rates may cross 8%
August 05, 2022
Rising equated monthly instalment (EMI) is giving sleepless nights to many home loan borrowers. This is because the Reserve Bank of India (RBI) has increased the repo rate by 0.9 per cent since May 4, 2022. Banks have also passed on the entire rate hike to customers leading to a rise in borrowing costs. A borrower who took out a home loan at 6.72 per cent is now paying 7.62 per cent leading to higher home loan EMIs.
For people living on a tight budget, there might be more surprises in store as the three-day Monetary Policy Committee (MPC) meeting of RBI is scheduled to start on August 3 with the RBI governor Shaktikanta Das and other MPC members present. With high inflation rates, experts say interest rates are expected to increase further, and may reach upto 35-50 basis points.
“Domestic liquidity has reduced significantly in the past fortnight averaging about 1 lakh crores (likely due to RBI intervening in FX markets). Commodity prices have come off the peaks and crude has been trading near $100. With supply-side issues waning, the upside risks to CPI have eased off a bit. However, the US Fed has raised rates by 75bps again (with the likelihood of a similar hike in the next meeting) and continues with its balance sheet reduction program. RBI has stated that it is looking to move towards neutral to positive real rates and given CPI estimations, a rate hike of 35-50bps in the forthcoming policy is likely, albeit with a less hawkish commentary,” explains Anand Nevatia, Fund Manager, Trust Mutual Funds.
If the repo rate increases, it will lead to a longer tenure or higher EMI for home loan borrowers. When the interest rate increases, 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.
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