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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RBI MPC Meeting 2024: At this time everyone is hoping that their home loan EMI will be reduced… If you have also taken any kind of loan, then tomorrow from RBI A big decision is coming. The decision on policy interest rate will come on April 5.

This meeting started on 3 April. It is expected that the Central Bank can once again keep the repo rates stable. Along with this, the focus of RBI is to keep inflation under control.

The focus is expected to remain on real inflation as concerns over the economic growth rate subside. This is the first monetary policy review for the financial year 2024-25. The new financial year has started from April 1st. This year RBI will hold 6 MPC meetings.

The change took place in February 2023

RBI last increased the repo rate in February 2023 and since then it has remained constant at 6.5 percent. There has been no change in the repo rate since the last 6 meetings.

Who is included in the committee

The committee headed by Governor Das also includes Shashank Bhide, Ashima Goyal, Jayant R Verma, Rajeev Ranjan and Michael Debabrata Patra. The government has asked the RBI to ensure that retail inflation remains at four percent with a variation of two percent. The retail inflation rate in the month of February was 5.1 percent.

What is the expert’s opinion?

The expert said that in the MPC meeting, attention can be given to the stance of central banks of some major economies like America and Britain. These central banks are currently in a ‘watch and wait’ position regarding interest rate cuts. Switzerland has become the first major economy to cut interest rates, while Japan, the world’s third largest economy, has recently ended the streak of negative interest rates.

There is a possibility of cut in Q3

The research report of State Bank of India (SBI), the largest public sector lender, has said that the withdrawal of liberal stance in monetary policy may continue. In this, the possibility of first rate cut in the third quarter of the current financial year has been expressed. On expectations from RBI, Housing.com Group CEO Dhruv Agarwal said that the central bank can keep the repo rate stable amid strong economic growth.

GDP growth rate estimate

The National Statistical Office (NSO) has revised the estimates of Gross Domestic Product (GDP) growth rate for the first and second quarter of the current financial year to 8.2 and 8.1 percent respectively. The growth rate in the December quarter of the last financial year was 8.4 percent.

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HDFC Bank is giving 7.75 percent interest to senior citizens on FDs maturing between 5 years 1 day to 10 years. For others, the interest rate for the same period has been fixed at 7 percent.

Fincare Small Finance Bank Senior citizens can get an interest rate of 9.01 percent on FDs maturing in 1000 days. For others, the interest rate has been fixed at 8.41 per cent for the same period.

Unity Small Finance Bank Senior citizens can get an interest rate of 9.50 percent on FDs maturing in 1001 days. For others, the interest rate is 9 per cent for the same tenure.

Utkarsh Small Finance Bank is giving 9% interest to senior citizens on FDs maturing in 700 days. For ordinary citizens, the interest rate for the same period is 8.25 percent.

Equitas Small Finance Bank is giving 9 percent interest to senior citizens on FDs maturing in 888 days. Others are getting 8.5 percent interest for the same period.

State Bank of India (SBI) has extended the validity of Amrit Kalash Special FD (FD) scheme till 30 June 2023. In this, 7.10 percent interest is being offered on 400 days FD. Apart from this, there is an interest rate of 7.60% for senior citizens.

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