The new Governer of RBI (Reserve Bank of India), Sanjay Malhotra announced a reduction in repo rate by 25bps (basis points), bringing the repo rate down to 6.25% from 6.50%. This the first rate cut in repo rate in the last 5 years, a move that will help ease the borrowing cost on home loans for home buyers. 

 From Oct 1, 2019, most bank loans, such as MSME loans, personal loans, home loans, car loans, and retail floating rate loans are offered at an interest rate , which is linked to EBRL or external benchmark linked rate. Repo rate is also an external benchmark linked rate. This means lenders and banks would have to directly lower interest rates, and pass on the advantage of rate cut to its borrowers, by resetting their interest rates at least once every quarter.

Take advantage of reduced interest rates

If you have an ongoing home loan that’s linked with base rate or MCLR, then consider switching and saving money on the reduced interest rate. Reassess your loan terms and interest outgo as you might be paying more than necessary, especially if your loan is linked with older benchmarks like base rate (Pre-MCLR lower limit on rate of interest by RBI) or marginal cost of funds based lending rate (MCLR). When the repo rate gets reduced, it also affects the home loans making them cheaper, resulting in lower EMIs. 

 Home loan borrowers, who are already paying the EMIs, can also choose to reduce the repayment tenure instead of lowering the EMIs. Closing the loan sooner will free borrowers from the cycle of ongoing EMIs, thus reducing their financial burden in the future. Those planning to take a new home loan can avail the benefit of rate cut and get a home loan at an attractive interest rate from the banks or housing finance companies.