How will increase in repo rate affect customers?
With the increase in the repo rate by RBI, most customers will have to bear the brunt. Increasing the 50 basis points will increase the interest of all loans associated with MCLR. This means that customers whose loans are running at a floating interest rate will have to pay more interest. All the home loans associated with MCLR will also have to pay increased interest and this will greatly affect their pockets.
Increase in interest rate will not affect the customers immediately. These days lenders do not increase the amount of EMI, they extend the period. Due to this system, the customer does not know the effect, but if you do the calculation, then you will find that the burden on your pocket is being increased due to the increase in interest rate.
How to deal with increased interest rate
Due to the increase percent interest rate, existing home loan customers have to pay a huge amount. But if some smart tips are adopted then you can save a lot of money in loan payment. Follow these tips to reduce interest:
Loan refinancing can be a big help
Leaving the existing lender and moving to another lender can reduce your problem. We know that the repo rate has increased by 25 basis points but this does not mean that all lenders will increase their interest rate by 0.25 percent. Some lenders also increase their MCLR by more than 0.25 percent. If your lender is also one of them, then changing the lender is right for you. In technical language, changing the lender is called home loan balance transfer. After the completion of 18 months of EMI payment, you can complete the process of home loan balance transfer. Before switching loans, make sure to compare the home loan interest rates of various lenders. If the interest rate falls by one percent, then you will save a lot of money at the end of the period.
Increase EMI not duration
In such situations, it is the ground rule to reduce the interest of housing loan. The bank imposes a credit interest rate at the compound interest rate. This means that the longer loan period will be more expensive for the customer on the same amount as compared to the shorter one. As mentioned above, the increase in repo rate will not affect the EMI of the customer immediately but the loan period will be extended. In such a case, if you want to reduce the interest, then you can request your lender to increase the EMI instead of extending the loan period. By increasing the EMI, you can save a large amount on interest payments.
Where possible, make a partial payment of the loan
Part payment is part payment. This helps in reducing the amount borrowed. Many financial experts recommend that instead of investing your extra money in low returns, repay your loan. The savings you will pay on interest payment will be more than the return of your investment. Home prepayment has many effects on the customer. You can reduce the duration by making a home loan prepayment. Due to the short duration, you will be debt free before time. If pre payed at the beginning of the loan term, it gives very good results. But keep in mind that there is no change in the interest rate due to part payment, but as the duration decreases, the interest payment is reduced.
Repo rate has been increased after 4 years. Inflation of money is an important reason for increase in repo rate and it is quite certain that it will increase or decrease in future also. We can do this by taking small steps to reduce the cost of borrowing.