Last month, the Reserve Bank of India increased the policy Repo Rate from 4% to 4.4%. In June, the RBI further increased it by 50 basis points, bringing it to 4.9 percent (as it currently stands). However, you must be wondering where this leaves us. How will it affect our financial decisions as we advance?
When the Repo Rate is raised, the cost of funds for banks rises as well. The Repo Rate is the rate at which banks borrow funds from the Reserve Bank of India. As a result, when the RBI raises the Repo Rate, bank loans for consumers, that is, the cost of borrowing for retail or commercial purposes, and other personal investments in real estate or education also increases. Therefore, banks hike interest rates, as your monthly instalments (EMIs) become more expensive.
Several house loan lenders, including HDFC, ICICI, Bank of Baroda, RBL, and Federal Bank, hiked their home loan interest rates a day after the Reserve Bank of India raised the Repo Rate to combat rapidly rising inflation. HDFC, one of the country’s largest lenders, announced Thursday that its lowest home loan rates would start at 7.55 percent, up from 6.7 percent in March.
When the Repo Rate rises, so does the bank’s Repo Rate linked lending rate (RLLR). The borrower’s home loan interest rate will rise due to this. In actuality, instead of raising the EMI, banks usually lengthen the loan’s term.
Begin by asking the bank to extend the loan’s term rather than the EMI. For example, the EMI on a Rs 50 lakh loan for a 25-year term serviced at 6.75 percent will only rise from Rs 34,500 to Rs 35,800. However, if the EMI is maintained, the tenure will be extended by 36 months. At the same interest rates, you end up paying less interest upon increasing the tenure.
You can prepay your loan, at least partially, to avoid feeling the pinch and relieve the pressure of a higher EMI.
Because fixed deposit (FD) rates are currently low, ranging from 3.1 percent to 4.1 percent, home loan customers can use their FDs to prepay a portion of their loans.
Investors are getting good returns on their investments in the stock market. Markets can become an appealing place to invest with the right guidance and research. To outperform inflation, the return must be greater than 7%. Experts say that a drop in the stock market should be viewed as an opportunity to buy more stock.
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