Repo rate linked home loan: Now home loans will be cheaper
If you are complaining that your bank is not reducing the home loan interest rate, then there is good news for you.
The Reserve Bank of India has ordered that from October 1, 2019, the new floating rate loan will now be linked to the external benchmark. Home loans and auto loans are generally floating-rate loans.
Let us know how you will benefit from this new rule.
How is the home loan interest rate calculated?
Your home loan interest rate has two parts.
Benchmark: Like Base Rate, MCLR, the benchmark interest rate keeps on changing.
Spread: It depends on your employment, ability to repay the loan, credit score etc. The spread on Mango Toor remains the same throughout the tenure of your loan.
Your interest rate will be Benchmark + Spread
Assuming the benchmark is 8% now and your loan spread is 1.5%, then your loan interest rate will be 9.5% p.a.
If the benchmark increases to 9% after some time, then your loan interest rate will increase to 9%+1.5%=10.5%.
If the benchmark decreases to 7%, then your loan interest rate will decrease to 7%+1.5% = 8.5%.
Every bank calculates the benchmark interest rate according to a formula.
What's the problem with that?
It has been seen that banks increase the benchmark interest rate quickly, but do not do it less easily. This causes a lot of trouble to the loan borrowers. Their EMI increases quickly, but does not reduce easily.
When the interest rate in the economy increases, then the interest rate on your loan increases quickly.
But when the interest rate is decreasing in the economy, then the interest rate does not decrease quickly.
What will be the benefit of External Benchmark (External Benchmark)?
The bank has no control over the external benchmark.
Banks can use the Reserve Bank repo rate or treasury bill yield as an external benchmark.
Now since the bank has no control over the benchmark interest rate, whenever the external benchmark rate changes, your loan interest rate will also increase or decrease.
The interest rate of your loan will be reduced easily. The bank will not be able to do any trick here.
State Bank of India has also started Repo Rate Linked Home Loan (RLLR Home Loan). The repo rate of the Reserve Bank has been made the benchmark in this loan. The interest rate of this home loan is less than the old home loan. For more details, you can visit the website of SBI Home Loan.
I already have a home loan, can I shift?
Yes, if you have an existing loan that is linked to a benchmark like base rate or MCLR, you can shift it to an external benchmark loan.
According to me, you will not have to pay any special fee for this.
You contact your bank after 1 October 2019. Find out what will be the new interest rate on your loan if you shift the loan.
If the new interest rate is lower than your existing interest rate, you can shift. Keep the shifting fees in mind as well.
If your loan is not from the bank, then you will not get this option. If your loan is from HDFC, DHFL, or LIC Housing Finance, then you will not get the benefit of this rule right now. But in such a situation you can get your loan transferred to the bank.
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