How Repo Rates Impact Your Home Loan Interest Rates? - Home Loan Stories | Kotak Mahindra Bank

05 MAY, 2021

The home loan interest rate charged by the lender plays a crucial role in determining the overall cost of borrowing. Since a home loan is a long-term liability, a lower interest rate can reduce the repayment burden to a great extent. Due to the rising competition in the Banking and Finance Sector, several banks provide home loans at a competitive interest rate. However, certain factors such as your repayment capacity, credit score, monthly income, job stability, etc. might affect your home loan interest rate. While you can make yourself eligible for a lower interest rate by working on these aspects, a few factors influencing the interest rate are beyond your control. One of those is the repurchase rate, commonly known as the repo rate.

What is Repo Rate?

The rate of interest at which banks borrow funds from RBI is known as the repo rate or repurchase rate. At times, to meet their short-term monetary requirements, banks borrow money from the Reserve Bank of India (RBI) by paying interest on the borrowed amount. Therefore, if RBI decreases the repo rate, banks can avail funds at a lower cost to meet their requirements. As a result of this, banks can reduce interest rates for their customers too. In simple terms, a reduced repo rate can help you avail a home loan at a comparatively lower interest rate. On the contrary, if RBI increases the repo rate, the overall cost of funds for banks will increase. Consequently, banks may charge a higher interest rate on home loans

It’s not mandatory for banks to change their home loan interest rates with every change in the repo rate. However, RBI expects that banks should pass the benefits of a reduced rate to their customers at the earliest.

Reduction of repo rates have direct impact on interest paid. If RBI decreases repo rates, the banks are expected to lower their interest rates on loans. Hence, with the decrease in repo rates, the concerned financial institution may reduce the MCLR, in turn, reducing the home loan EMI for the borrowers.

When this change gets transmitted to a particular loan borrower would depend upon the reset-date for the particular loan. Once the bank changes the MCLR, the new rate would become applicable for the borrower from the next reset date.

So next time when Reserve bank of India reduces or increases the repo rate, you know what to expect in terms of Home Loan interest rates. With Kotak Mahindra Bank, you can easily avail home loan at the most competitive rates. Process of getting a home loan with Kotak is a hassle-free and quick process. All you have to do is click on the Apply Now button, fill an online application form with the personal details, get a quote and apply online.

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Disclaimer: This Article is for information purpose only. The views expressed in this Article do not necessarily constitute the views of Kotak Mahindra Bank Ltd. (“Bank”) or its employees. Bank make no warranty of any kind with respect to the completeness or accuracy of the material and articles contained in this Newsletter. The information contained in this Article is sourced from empaneled external experts for the benefit of the customers and it does not constitute legal advice from Kotak. Kotak, its directors, employees and the contributors shall not be responsible or liable for any damage or loss resulting from or arising due to reliance on or use of any information contained herein.