Financing is a major aspect of property purchase. Whether it is getting a competitive interest home loan or finding an affordable 2 BHK in Thane, careful budgeting is essential to meet your payment obligations timely.

One important finance aspect in home loans that often goes ignored is the repo rate. Here, we take a look at what this rate is and how it can affect your financing and budget towards your dream luxury 2 BHK home in Thane.

Repo Rate

The repo rate is the interest rate at which the Reserve Bank of India (RBI) lends money to commercial banks in the country. Commercial banks use this money to meet their liquidity requirements. RBI uses the repo rate as a means to control inflation and liquidity in the economy.

Relation between Repo Rate and Home Loans

For a lot of people, this rate may feel like a financial tool that is useful for the banks only. However, this rate is important in determining the rate at which loans are sanctioned by the bank.

When the RBI increases the repo rate, borrowing from the RBI becomes more expensive for banks. This increase in borrowing rate is often passed down to customers, resulting in higher interest rates on loans. Conversely, when the RBI reduces the repo rate, it makes borrowing cheaper for banks, which can lead to lower interest rates for consumers, making loans more affordable.

Thus, a home loan for luxury homes in Thane may incur a higher or lower interest based on the repo rate decided by the RBI at that time.

Impact of Repo Rate on Home Loans

Changes in EMI

A low repo rate may encourage banks to lower their interest rates allowing for competitive EMIs. However, an increase in the repo rate leads to higher home loan interest rates raising the EMIs and the financial burden on the borrower.

Loan Eligibility

As bank financing is impacted by repo rate, it may also impact a borrower’s eligibility criteria. For instance, during a high repo rate, certain buyers may not qualify as eligible for a home loan as per a bank’s specifications.

Loan Tenure

Some banks offer borrowers the choice to either adjust their EMIs or extend the loan tenure in response to a change in interest rates. When rates increase, some borrowers might opt to extend the loan tenure to keep EMI amounts manageable, thereby extending their financial obligations.

Note: Fixed-rate home loans are unaffected by repo rate changes during the fixed period. This may offer stability in payment even when the RBI policy changes. However, if the repo rate decreases, people with a flexible interest-rate home loan may enjoy the advantages of lower payments. To know which plan suits you better, be sure to check all financing plans across multiple banks.

Conclusion

The repo rate plays a significant role in determining home loan interest rates and influencing EMI amounts. To ensure you do not meet any additional roadblocks in purchasing your dream property in Thane, be sure to pick the right interest plan and be attentive to changes in RBI policies that could affect your EMI.