Impact of Economic Trends on Home Loan Interest Rates - Kotak Bank
  • Personal
  • Business
  • Corporate
  • Private Banking
  • Privy League
  • NRI Services
  • Investors
  • Personal
  • Business
  • Corporate
  • Private Banking
  • Privy League
  • NRI Services
  • Investors
Apply Now
16 JUNE, 2023

The Indian economy has been continually growing, over the years, with the most eminent impact coming during the global pandemic that broke out in 2019. The sector that has experienced massive changes is the housing market. In particular, the cost of borrowing. The cost of borrowing is directly proportional to the interest rates charged, keeping tenure and amount constant.

Today, Home Loan interest rates are higher than they have been ever before. As a result, borrowing has become more costly. Home loan interest rate refer to the percentage charged by lenders on borrowed funds for purchasing a home.

There are several factors that influence Home Loan interest rates in India. These include government policies, RBI’s monetary policy, and inflation, among others. Understanding these trends is essential to determine the loan’s affordability and plan better on their monthly budget. It will help borrowers gain valuable insights, which will help them make more informed decisions.

In this post, we will discuss the impact of economic trends on Home Loan interest rates in depth.

Overview of Economic Trends in India

Home Loan interest rates have been on the rise as RBI hikes their rates. In less than a year, the Reserve Bank of India has had six consecutive rate hikes. As a result, Home Loan interest rates have risen by 2.5% from 6.5% in May 2022 to 9% in March 2023. Ultimately, Home Loans have also become more expensive and less affordable for borrowers.

The future of Home Loan rates is uncertain, and borrowers can only hope that the rates go down. The good news is that on 6th April 2023, RBI decided to keep the rates unchanged despite experts predicting otherwise.

There are several factors that influence economic trends in India. Top on the list is inflation. For instance, the recent rate hikes by the RBI were based on the inflation rate in the country. Other factors include

  • Monetary policy
  • Government policies
  • Economic growth
  • Global market conditions

When it comes to Home Loan interest rates and economic trends, there are several indicators to watch out for;

  • GDP (Gross Domestic Product): Interest rates might increase with growing GDP
  • Rate of unemployment: High rate of employment results in high-interest rates.
  • CPI (Consumer Price Index): This is a measure of the cost of living. If it goes up, interest rates also go up.

Impact of Economic Trends on Home Loan Interest Rates

Economic trends might increase or lower Home Loan interest rates, depending on several factors. For instance, when inflation is high, RBI decreases the repo rates and vice versa.

During the Covid-19 pandemic, the Indian economy slowed down significantly, and, as a result, RBI lowered their repo rates. Subsequently, the interest rates on most loans also went down. But the strategy by the RBI to cut down repo rates had been there even before the pandemic. Precisely, this was the trend in India for at least 5 Years.

Predicting Future Home Loan Interest Rate

Like all other countries in the world, India is still recovering from the effects of the pandemic. While this is true, reports by the World Bank reveal that India’s economic growth continues to show resilience despite the challenging global environment. To be precise, India is one of the fastest-growing economies in the world, according to the World Bank.

If you want to keep track of the possible fixed interest rate in the coming future, keep an eye on the following -

  • GDP growth
  • Inflation rate
  • Government policies
  • Global economic trend
  • Monetary policies

Read also: Understanding the Relationship between Inflation and Home Loan Interest Rates in India


Economic trends have a significant impact on Home Loan interest rates. Factors that affect economic trends include inflation rates, GDP growth, and government policies, among others.

FAQ’s about Economic Trends On Home Loan Interest Rates

What factors influence Home Loan interest rates in India?

Factors influencing Home Loan interest rates include RBI’s repo rates, inflation, economic growth, government policies, etc.

How do economic trends impact the housing market?

Economic trends affect Home Loan interest rates. High-interest rates might make Home Loans costly for people.

What are some of the most significant economic indicators to watch for predicting Home Loan interest rates?

To keep track of Home Loan interest rates, look out for GDP (Gross Domestic Product), rate of unemployment, CPI (Consumer Price Index), and Expected Inflation.

What are the implications of rising interest rates for the housing market?

Rising interest rates mean costly loans, less affordability, and hence less demand for Home Loans and housing purchases.

How do global economic trends impact Home Loan interest rates?

India is part of the global market through trade, investment, and other economic ties. Therefore, international economic events, such as currency fluctuations, geopolitical tensions, and recessions, can impact its economic performance significantly. The state of the economy plays a critical role in determining Home loan interest rates.

Latest Comments

Leave a Comment

200 Characters

Read Next

Bank vs. HFC: What Should You Choose for Your Home Loan?


Stamp Duty & Property Registration Charges in Chennai, Tamil Nadu


What is Prime Lending Rate? Meaning, Characteristics in Banking & Importance

Load More

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.