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Business News/ Money / Personal Finance/  RBI Monetary Policy: How to get over with your home loan quickly with lower interest rates?

RBI Monetary Policy: How to get over with your home loan quickly with lower interest rates?

The recent stance by RBI on repo rates at its recent MPC meeting highlights how home loan interest rates will continue to remain the same. However, home loan borrowers finding it difficult to repay may either shop around for lower interest rates or adopt ways to get rid of the debt quickly.

RBI governor Shaktikanta Das keeps policy rates unchanged, thus, boosting the Indian housing sector.Premium
RBI governor Shaktikanta Das keeps policy rates unchanged, thus, boosting the Indian housing sector.

The Reserve Bank of India (RBI) governor Shaktikanta Das announced the Central Bank’s decision to keep the repo rate unchanged at 6.5 per cent for now. He further mentioned that the Central Bank has maintained its stance on accommodation withdrawal without any alterations.

The choice made by the Monetary Policy Committee (MPC) to maintain interest rates signifies its dedication to both curbing inflation and bolstering economic growth. This move is projected to invigorate the demand for housing, rendering home purchases more financially viable for individuals.

A boost to India’s housing sector

In recent times, the MPC has been steadily increasing interest rates as a measure to mitigate inflation. However, there is now apprehension that rapid rate hikes could impede economic expansion. By keeping rates unchanged, the MPC is effectively finding a harmonious equilibrium between inflation control and growth promotion.

This resolution is poised to be warmly received by the housing sector. Escalating home prices in recent years have posed challenges for many aspiring homeowners in affording a residence. The MPC's decision, by making borrowing more economical, is anticipated to spur housing demand and contribute to a moderation in the housing market.

Anuj Puri, Chairman, ANAROCK Group said, “As widely anticipated, the RBI has decided to keep the repo rates unchanged at 6.5%. India continues to outperform other countries in terms of consumption and with the festive season coming up, the RBI will not risk denting it. This is nothing but good news for aspiring homebuyers on the market for purchase in the near future. The unchanged repo rate will help maintain the momentum in housing sales - particularly in the mid and luxury segments, which did significantly well in H1 2023."

Adding to how the recent stance by the RBI would affect the country’s housing sector, Garvit Tiwari, Director & Co-Founder, InfraMantra added, “The RBI’s decision to maintain the status quo for the second time is a welcome move and in line with expectations. This affirms the view that interest rates will only have one direction, which is downwards. This is a big positive for home buyers as they know that their EMIs down the line will only decrease further. A lot of fence-sitters are expected to jump in, and developers are likely to cash in on this pent-up demand."

While the stimulative effect on the housing sector is well understood, home loan borrowers often wonder how to negotiate home loan rates to settle down for lower interest rates. Buying a home and securing a loan for the same is an arduous task that involves a lot of searching, and scourging on the web for loan interest rates while also looking for ways to mitigate the overall cost of borrowing.

Negotiating for low home loan interest rates

Home loan interest rates are already too high, which means that home loan borrowers must look for ways to either negotiate for a low-interest loan or resort to strategies that would rid them of the burden of loan debt effectively.

You may explore the following approaches to alleviate the weight of interest and enhance the affordability of your home loan:

Choose to make a higher down payment: Opting for a significant initial payment towards your home loan can yield substantial savings in the long term. A down payment signifies the upfront sum you pay when purchasing a home. The greater the amount you commit at the outset, the lower your loan principal becomes. This translates to reduced monthly installments and diminished interest expenditure throughout the loan's duration. The effort is undoubtedly rewarding if you can amass a substantial down payment. Moreover, it positions you for a more competitive interest rate. Lenders typically extend lower interest rates to borrowers who offer larger down payments, potentially leading to considerable savings spanning thousands of dollars over the loan's lifespan.

Consider loan refinancing: Certain banks or fintech entities might extend the option of reduced interest rates, opening the door for potential loan refinancing at a lower rate. This can lead to savings on your monthly obligations and overall interest payments throughout the loan's duration.

Should the idea of refinancing your home loan pique your interest, it's pivotal to engage with a lender for pre-approval. This step offers insight into your borrowing capacity and potential interest rate. Utilizing a mortgage calculator is also valuable, enabling a comparison between the monthly payments and total interest expenses of your current loan versus the proposed refinanced option.

Should you conclude that refinancing aligns with your goals, diligently seek the most favourable interest rate. Gathering estimates from numerous lenders, whether through online channels or phone communication, is advisable. Upon identifying a lender with an attractive interest rate, meticulously review the terms before committing your signature.

Refinancing your home loan stands as a promising avenue for curbing monthly expenses and trimming overall interest payments over the loan's lifecycle. Nevertheless, comprehensive research and ensuring suitability for your circumstances are crucial before proceeding.

Supplement with extra payments: Integrating additional payments into your monthly home loan instalments can expedite loan repayment and result in substantial interest savings.

In the usual monthly installment for your home loan, a portion addresses the accrued interest while the remaining portion chips away at the principal balance. When you contribute an extra payment, the entirety of that payment is allocated toward reducing the principal balance. Consequently, this translates to diminished interest obligations over the loan's lifespan. Opting for supplementary payments on your home loan holds the potential for substantial interest savings. If your financial circumstances allow for such extra contributions, it is undeniably advantageous.

For instance, in the event of a salary increase or a bonus, consider channelling those funds into an extra payment for your home loan. Similarly, unexpected financial windfalls like inheritances or tax refunds can be directed toward a lump sum payment on your home loan, further accelerating the path to full repayment.

Prefer a shorter loan tenure: The length of your loan term plays a pivotal role in determining the interest amount you'll incur. Opting for longer tenures, spanning 25 to 30 years, might yield smaller monthly payments, whereas selecting shorter terms, ranging from 10 to 15 years, can notably curtail the overall interest expense. Employ a home loan EMI calculator to perceive the substantial interest reduction achievable with shorter-term loans vividly. Exercise prudence in your loan tenure selection to sidestep heightened long-term interest costs.

Prioritize high-interest debt settlement: If you have other debts, such as credit card debt, with interest rates surpassing those of your home loan, it is imperative to prioritize settling those debts first. This is due to the typically higher interest associated with credit card debt compared to your home loan.

Presently, your credit card debt incurs significantly more interest compared to your home loan. Consequently, your optimal approach should involve expeditious repayment of your credit card debt.

Upon successfully clearing your credit card debt, you will unlock additional funds that can be allocated toward extra payments on your home loan. This strategic move will expedite your home loan repayment, leading to accelerated interest savings.

Prefer fixed-rate loans: Opting for a fixed-rate loan is a favourable choice for individuals seeking precise insight into their monthly commitments throughout the loan's duration. This attribute proves advantageous for effective budgeting and future planning.

Within a fixed-rate loan framework, your interest rate remains constant, even if broader market interest rates undergo fluctuations. Consequently, your monthly payments remain consistent regardless of any shifts in interest rates.

Evidently, a fixed-rate loan offers a sense of assurance and stability. If your quest involves securing a loan affording steadfast monthly payments, a fixed-rate loan presents itself as a commendable avenue for consideration.

Survey for optimal interest rates: When obtaining a home loan, it's crucial to engage in thorough comparison shopping to secure the most favourable interest rate. This precaution is vital due to the substantial variability of interest rates across different lenders.

You can solicit interest rate estimates from various lenders through online platforms or phone interactions. Subsequently, after gathering multiple quotes, you can engage in a comparative analysis to pinpoint the lender extending the most advantageous interest rate.

Furthermore, while selecting a lender, it's essential to account for additional factors like closing costs, fees, and customer service. However, given its paramount significance, the interest rate remains the foremost consideration, underscoring the necessity of procuring the most competitive rate available.

Secure pre-approval before house hunting: Obtaining loan pre-approval prior to commencing your home search is a highly advisable step. This proactive approach furnishes you with an understanding of your budgetary limits and contributes to a more streamlined home-buying journey.

Upon securing pre-approval for a loan, the lender assesses your financial situation and provides an estimate of your borrowing capacity. This preliminary figure offers valuable guidance regarding the appropriate price range as you embark on your home search.

Moreover, pre-approval signals to sellers your genuine intent to purchase a home, granting you a competitive edge over potential buyers who lack pre-approval.

If the prospect of purchasing a home is on your radar, obtaining loan pre-approval before embarking on your search helps. This practice not only facilitates a smoother home-buying experience but also heightens your prospects of acquiring the desired property.

By adhering to these strategies, you can lighten the interest burden and enhance the affordability of your home loan.

We explain here why does RBI change repo rate
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We explain here why does RBI change repo rate

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Published: 10 Aug 2023, 04:22 PM IST
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