The RBI has raised interest rates by 25 basis points to 6.5% as per a recent announcement. This is six consecutive hikes by the Reserve Bank of India and will be the reason for the increase in equated monthly instalments (EMIs) of home loans.
Major effects will be felt by people whose mortgages are based on external standards like the repo rate.
Repo rate rises by the RBI typically result in higher funding costs for banks. For the funds they loan from the RBI, banks will be required to pay more.
Therefore, banks raise their interest rates to reflect the costs, making EMIs more expensive for borrowers.
As a result, home mortgage interest rates have climbed for both new and existing customers.
The increases will be carried on to borrowers of house loans, according to Homebazaar.com reports. The cost of the mortgage will increase as a result.
Prepayments can then be prioritised by borrowers to lower their loan interest. They will be able to shorten their loan terms and EMIs thanks to this.
This increase will definitely push up home loan interest rates, which have already risen this year following five straight increases. The effect on housing will be, at most, limited as long as interest rates stay in the single-digit range.
Most financial institutions have linked loan rates to repo rates.
