Impact of Interest Rates on Home Loans: The scenario of rising interest rates over the past few months and the expectation of further rate hikes should have an impact on the attitude of homebuyers, even if in the short term and home sales could also suffer, according to experts.
“Just as with the decline in the number of applicants for new home loans, the number of home sales could also be affected in the short term,” said V. Swaminathan, Executive Chairman, Andromeda Loans and Apnapaisa.com.
Every time the central bank raises the repo rate, lenders pass the burden on to borrowers in the form of higher interest on home loans. For this reason, most borrowers choose to delay their decision to apply for a new loan in hopes that the central bank will lower the repo rate.
Shortly after the current rate hike by the RBI, most banks started raising their lending rates. For this reason, borrowers with variable rate interest on their loans saw an increase in monthly EMIs.
“Existing borrowers with floating loans will see an increase in their monthly EMIs as these loans are reviewed on a quarterly basis, subject to existing conditions. Customers with home loans and property loans are likely to see an increase more strong EMI rates,” said Amit Prakash Singh, Commercial Director, Urban Money.
Singh further added that for every 1% increase in home loan rates, the EMI for every Rs 1 lakh of home loans is likely to increase by Rs 60-70 per month. It is likely that the current upward trend in repo rates will not last forever and that rates will eventually fall if the RBI manages to rein in inflationary pressure.
The Reserve Bank of India (RBI) raised its repo rate by 50 basis points in August to keep inflation under control.
Over the past three months, RBI has raised the repo rate by 140 basis points – in May by 40 basis points, 50 basis points in July and 50 basis points in August.
This has pushed home loan rates across banks, as with rising rates banks tend to pass their burden on to investors to maintain balance.