The Monetary Policy Committee (MPC) of the Reserve Bank of India has kept the rates unchanged for the seventh consecutive time after its latest meeting, which was the first for 2024-25. The decision to keep the rates stable has been taken after careful consideration of the inflation outlook and several macroeconomic indicators.

Repo rate is the interest rate at which RBI gives loans to other banks. Currently the repo rate is 6.5 percent. The central bank is continuously waiting as global factors are influencing crude oil prices, which are seeing a rise. Although a rate cut is expected this year, currently prevailing macroeconomic factors rule out this possibility for now.

This means that home loan borrowers will have to wait longer to find some relief from higher rates and consequent higher loan EMIs. Some major banks like HDFC and Bank of India have also increased loan rates recently. With home loan rates hovering above 9%, here are some strategies borrowers can adopt to get some relief.

Know your benchmark
The benchmark rate is an integral part of the retail rate. This is the lowest rate at which the loan is given. From October 2019, floating home loan rates have been linked to the repo rate, which is currently 6.5 per cent. Before 2019, the loan was linked to the Marginal Cost of Funds based Lending Rate (MCLR) and before that to the Base Rate.

Loans tied to the old benchmark remained unaffected by interest rate changes, especially during periods of high inflation when the benefits of rate cuts were not reaching borrowers. To solve this, RBI introduced external benchmark in 2019. Therefore, if your loan is still tied to the old benchmark, you will be paying an expensive loan. Therefore, it is advisable that you consider transferring your existing loan to a repo-linked loan.

Switch to lower spreads

Loan spread or spread is another important component of repo-linked loans. For home loans, the spread is determined based on your credit score, source of income and the loan amount you have applied for. Home loan spreads have declined significantly in 2024 compared to the beginning of 2020, when they were 275 to 360 bps above the repo rate. The lowest interest rates currently range from 8.30% to 8.50%,

resulting in a difference of 180 to 200 basis points. Once you sign your home loan contract, your spread remains the same throughout the tenure of the loan. If you are applying for a new loan, try to get a lower spread to take advantage of future rate cuts. If you have an existing loan, try refinancing it at a lower spread.

Check if you’re on a higher rate and switch

At present the lowest home loan rate is 8.30 percent. Many lenders are also offering rates around 8.50%. Keeping this in mind, assess how much extra you are paying for your home loan above 8.50%. If it is less than 50 basis points, it can be managed in the current situation. But, if it is more than 50 bps, which is in the range of 9-10%, you should consider refinancing your loan at a lower rate.

Refinance to reduce your burden

Check with your existing lender about refinancing your loan at a lower rate. This option may require less paperwork and lower processing fees. But if your bank doesn’t offer this option, explore refinancing with another lender.

However, it may involve comparatively more paperwork and higher costs in the form of processing fees, MOD charges and legal fees. The total cost can range from 0.5-1.00% of the loan amount you are refinancing. However, if the rate reduction is significant, refinancing will pay off in the form of lower interest payments.

Pay early and reduce your debt burden
If your financial condition allows, consider pre-paying 5% of your loan balance to reduce your debt burden. You can increase your EMI amount or reduce your tenure by pre-paying an additional EMI at the beginning of the year. However, if the interest rate is high, consider prepaying your remaining loan in full. But before doing so, keep in mind your financial situation and the impact of this move.

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Many banks have increased the interest rates on FD this month. According to experts, the trend of earning on FD may continue for a few more months i.e. in 2024. Let us also tell you which bank has increased the interest on FD by how much.

Bank of India increases FD rates in December 2023

Bank of India has increased the interest rates on FDs of Rs 2 crore and above and less than Rs 10 crore for its customers and general public from December 1, 2023. Bank of India has increased its FD rates for short periods. 5.25% on FD of 46 days to 90 days, 6.00% on FD of 91 days to 179 days, 6.25% on FD of 180 days to 210 days, 6.50% on FD of 211 days to less than 1 year and one year FD But interest is available at 7.25% per annum.

DCB Bank increases FD rates in December 2023:

Fixed deposit rates on selected tenures have been increased for FDs less than Rs 2 crore. The new rates are effective from December 13. According to the bank’s website, after the change in rates, general customers will get 8% interest and senior citizens will get 8.60% interest. General customers are being given interest rates ranging from 3.75% to 8% on FDs of seven days to 10 years and senior citizens are being given interest rates ranging from 4.25% to 8.60%.

Kotak Bank increases FD rates in December 2023

Kotak Mahindra Bank increased the interest rates for periods ranging from three to five years. After revision, Kotak Bank is offering interest rates of 2.75% to 7.25% on FDs maturing in seven days to ten years. It is offering interest rates of 3.35% to 7.80% for senior citizens. These rates are applicable from 11 December 2023.

Federal Bank increases FD rates in December 2023:

The bank has increased the FD rates from December 5, 2023 to 7.50 percent for 500 days. At the same time, for senior citizens, maximum interest is given at 8.15% for a period of 500 days and 7.80% for a period of more than 21 months to less than three years.

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Governor Das told that in view of the pressure of inflation, once again the repo rate is being increased by 0.35 percent. With this decision, all types of loans including home, auto, personal will become expensive in the coming times.

The Reserve Bank today increased the repo rate for the fifth time in a row. For the first time this year, the repo rate was increased by 0.50 percent in May. Since then, till now the repo rate has increased by 1.90 percent. Before today’s hike, the effective repo rate stood at 5.90 per cent. Now the effective repo rate of the Reserve Bank has become 6.25 percent. Repo rate is the rate at which the Reserve Bank lends to other banks. It is obvious that if it will be expensive for the banks to take loan from RBI, then the banks will pass its burden on the common man as well.

Earlier, the Reserve Bank had made a big cut in the repo rate to reduce the debt burden during the Corona period and to give relief to the common man. Then the repo rate was reduced by about 2.50 percent to 4 percent. After the Corona period, now the Reserve Bank has started increasing the repo rate again. The biggest reason for this is the pressure of inflation. The rate of retail inflation had reached 7.4 per cent in September, which has come down slightly to 6.7 per cent in October. This is the reason that this time also the RBI has increased the repo rate less than before.

4 out of 6 voted for increasing the repo rate Out of 6 members present in the MPC meeting, 4 voted in favor of increasing the repo rate. He believed that it is necessary to keep the interest rates high until inflation comes under control. The target of the MPC is to bring down core inflation and it will be reviewed further. It is estimated that the retail inflation rate will remain above 4 percent for the next 12 months.

Growth rate estimate also reduced

Due to rising inflation and decline in consumption, the Reserve Bank has also had to reduce the growth rate estimate. The Reserve Bank had earlier estimated the growth rate for the current financial year at 7 per cent, which has now been reduced to 6.8 per cent. The recently released second quarter growth figures have also been sluggish. The growth rate in the second quarter was 6.3 per cent, which went up from 13 per cent in the first quarter.

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