Everything home buyers need to know about the repo rate and how it affects

Have you ever heard about the concept of repo rate?

If you keep a tab on current affairs and the economic world, then you must have.

If not, then this short post will brief you on it and how it affects home buyers.

Continue reading!

What is repo rate?

When you apply for home loan, you have to pay interest rate charges to your lender for making the loan amount available. Similarly, financial institutions have to pay interest charges to the Central Bank — Reserve Bank of India (RBI) when they borrow money. This interest rate is what is known as the repo rate. Lenders keep securities like gold or treasury bills to the RBI for availing of the credit. It is done in the case of a shortfall in liquidity.

The opposite of the repo rate is the reverse repo rate. Under the repo rate, financial institutes make money available to the bank. It is a technique used by the Apex bank to maintain desired inflation levels by absorbing liquidity out of the market.

How repo rate affects home buyers?

When you apply for home loans that are repo rate linked, borrowers are expected to a faster transformation in the rates of their loans. However, repo rate linked home loans can also work against home buyers when the interest rate rises. Hence, when it happens, you are expected to pay increased EMIs — affecting your budget.

If you don’t want to get surprised and pay a higher home loan EMI, you should opt for a fixed rate based housing loan. This way, you are assured to pay only a fixed EMI amount every month and is not affected by changes in the repo rate.

Comparing all home loan offers, having a robust CIBIL score, and a consistent employment history can help you enjoy a lower home loan interest rate.