Not even hardcore economists would follow the Reserve Bank (RBI), so eagerly as me, `` quipped my friend, a home loan borrower.
She is employed with a retail multi-national company, but will always say that she worked for a bank.
This was because the bank (which she got her loan) would take a chunk of his salary towards EMIs every month!
`` Did you know that in the past two years, the RBI hiked repo rates 13 times? `` She asked.
The pain of having serviced rising issuers for the past few years, it was clear in her eyes. The history of all home loan borrower `s life, I thought!
But with larger-than-expected 50 basis points cut in repo rate last week, my friend hopes that her EMI would come down. Will the benefits available only to new borrowers, or will it be passed on to existing customers?
Here `sa quick story about what you can expect if you are already a borrower or plan to become one soon.
Existing borrowers
For starters, RBI `s decision to cut rates a clearly positive if you are already servicing a floating-rate loans. But how much of a `positive` is, is yet unknown.
For one, most loans linked to banks `base rate. So will your issuers come down when banks cut their base rate.
And it may take awhile, as most banks will look to reduce their deposit rates first to bring down the cost of funds.
So while you can expect your EMIs to get cheaper, you will have to wait. Even then, there `sa possibility that banks would initially lower rates only available on certain loan products.
When and how much you benefit will depend on which bank you borrowed from.
While SBI chairman has gone on record saying that his bank would make a substantial reduction in lending rates, others, such as Vijaya Bank and Indian Overseas Bank said they may take some time to follow suit.
IDBI Bank, on the other hand, became the first lender to actually announce a cut in its rates. The Bank has announced a 25 basis point cut in base rate to 10.50% with effect from 20 april.
ICICI Bank, one day later announced a 25 basis point reduction in its base rate (effective April 23). PNB and Bank of Maharashtra has also reduced their base rate by 25 bps and 10 bps respectively. Most banks will have to huddle together in an asset-liability committee before they decide on their future movements. So no matter which bank you borrowed, seems to messages in this connection for more clarity.
More power in your hands
But what happens if your EMIs do not come down?
Fret not, because, without having to pay penalties to your bank, you can now borrow from another bank that offers a lower interest rate.
RBI is invalid banks charge foreclosure fees or prepayment penalties on home loans at a variable rate. You might also consider a loan conversion option with your bank.
But do note that you will stand to get out of repo rate cut only if your loan is floating. Fixed loans wouldn `t see any decrease in their issuers by virtue of their permanent nature.
New borrowers
If you have been stalling your purchase of assets (home, car, etc.) only because interest rates were too high, the stars to align in your favor! New borrowers will certainly stand to benefit from this move. A few weeks before the repo rate cut, had IDBI Bank and Canara Bank cut variable home loan rates by 25-175 basis points for new sanctions across the board.
Watch for more such competitive loan products in the coming months. Needless to say, it will make much more sense to choose a variable rate loan now.
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She is employed with a retail multi-national company, but will always say that she worked for a bank.
This was because the bank (which she got her loan) would take a chunk of his salary towards EMIs every month!
`` Did you know that in the past two years, the RBI hiked repo rates 13 times? `` She asked.
The pain of having serviced rising issuers for the past few years, it was clear in her eyes. The history of all home loan borrower `s life, I thought!
But with larger-than-expected 50 basis points cut in repo rate last week, my friend hopes that her EMI would come down. Will the benefits available only to new borrowers, or will it be passed on to existing customers?
Here `sa quick story about what you can expect if you are already a borrower or plan to become one soon.
Existing borrowers
For starters, RBI `s decision to cut rates a clearly positive if you are already servicing a floating-rate loans. But how much of a `positive` is, is yet unknown.
For one, most loans linked to banks `base rate. So will your issuers come down when banks cut their base rate.
And it may take awhile, as most banks will look to reduce their deposit rates first to bring down the cost of funds.
So while you can expect your EMIs to get cheaper, you will have to wait. Even then, there `sa possibility that banks would initially lower rates only available on certain loan products.
When and how much you benefit will depend on which bank you borrowed from.
While SBI chairman has gone on record saying that his bank would make a substantial reduction in lending rates, others, such as Vijaya Bank and Indian Overseas Bank said they may take some time to follow suit.
IDBI Bank, on the other hand, became the first lender to actually announce a cut in its rates. The Bank has announced a 25 basis point cut in base rate to 10.50% with effect from 20 april.
ICICI Bank, one day later announced a 25 basis point reduction in its base rate (effective April 23). PNB and Bank of Maharashtra has also reduced their base rate by 25 bps and 10 bps respectively. Most banks will have to huddle together in an asset-liability committee before they decide on their future movements. So no matter which bank you borrowed, seems to messages in this connection for more clarity.
More power in your hands
But what happens if your EMIs do not come down?
Fret not, because, without having to pay penalties to your bank, you can now borrow from another bank that offers a lower interest rate.
RBI is invalid banks charge foreclosure fees or prepayment penalties on home loans at a variable rate. You might also consider a loan conversion option with your bank.
But do note that you will stand to get out of repo rate cut only if your loan is floating. Fixed loans wouldn `t see any decrease in their issuers by virtue of their permanent nature.
New borrowers
If you have been stalling your purchase of assets (home, car, etc.) only because interest rates were too high, the stars to align in your favor! New borrowers will certainly stand to benefit from this move. A few weeks before the repo rate cut, had IDBI Bank and Canara Bank cut variable home loan rates by 25-175 basis points for new sanctions across the board.
Watch for more such competitive loan products in the coming months. Needless to say, it will make much more sense to choose a variable rate loan now.
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