Home Loan: Strategy to reduce EMI after repo rate cut, getting automatic benefit from the cut

New Delhi| After cutting the repo rate for the first time in about five years, people paying the monthly installment (EMI) of home loan can expect the interest rates to come down. Home loan borrowers at floating rates automatically get the benefit of repo rate cut, while other borrowers may have to negotiate with their lender to get relief. After this decision of RBI, banks and other financial institutions will also reduce the interest rates on loans, which can reduce the EMI burden. The reduction in the key policy rate will also be beneficial for those who want to buy a new house.

Fixed or floating rate: More than 90 per cent of people have taken home loans at floating rate, which is directly affected by repo rate changes. However, its effect will not be visible on the EMI of fixed rate loans. If you have also taken a home loan at a fixed rate, then you can choose the floating rate option by evaluating the market conditions and the remaining loan tenure.

If you have taken a loan from the bank at a floating rate, then you start getting the benefit of repo rate cut within a certain period. On the other hand, non-banking financial companies (NBFCs) can charge processing fees to avail its benefits. You can contact your lender to ensure that you get the full benefit of the deduction.

After October, 2019, those taking loans at floating rate have repo-linked loans, who get the benefit of rate cut in a quarter. Borrowers prior to 2019 have MCLR-linked loans, where rates change every 6-12 months. If you fall into the latter category, find out when your loan rate will change and how much you will save.

Can get refinancing done
If your current interest rate is 0.50 percent or more of the new rate and you have more than half of the loan tenure left, consider refinancing. You can either opt for a repo-linked loan with an existing bank or transfer your loan to another lender offering better terms. The transfer cost is about one percent of the loan amount. Refinancing options can help reduce the EMI burden or reduce the loan tenure depending on your financial goals.

Good opportunity for those taking new loans
Home loan rates which were earlier around 8.30-8.50 per cent will come down after the repo rate cut. This is likely to give borrowers with stable incomes and credit scores over 750 the lowest interest loans. Women, government employees and premium property buyers can also get loans at affordable rates. This is a good opportunity for those buying a new house by comparing the offers of banks.