How Does the Repo Rate Tie to Borrowing Costs?
When the Repo Rate is raised, the cost of funds for banks rises as well. The Repo Rate is the rate at which banks borrow funds from the Reserve Bank of India. As a result, when the RBI raises the Repo Rate, bank loans for consumers, that is, the cost of borrowing for retail or commercial purposes, and other personal investments in real estate or education also increases. Therefore, banks hike interest rates, as your monthly instalments (EMIs) become more expensive.
What Does a Rate Hike Mean to Your Home Loan EMIs?
Several house loan lenders, including HDFC, ICICI, Bank of Baroda, RBL, and Federal Bank, hiked their home loan interest rates a day after the Reserve Bank of India raised the Repo Rate to combat rapidly rising inflation. HDFC, one of the country’s largest lenders, announced Thursday that its lowest home loan rates would start at 7.55 percent, up from 6.7 percent in March.
When the Repo Rate rises, so does the bank’s Repo Rate linked lending rate (RLLR). The borrower’s home loan interest rate will rise due to this. In actuality, instead of raising the EMI, banks usually lengthen the loan’s term.
