Subtle Tactics Employed by Banks on your Home Loan EMIs

Traditional banks and non-banking financial institutions offered home loans to many individuals looking out to buy a new property. A home loan is one of the most high-value loans taken by a borrower. The repayment is done in easy installments monthly till the tenure ends. The banks have various subtle tactics regarding the monthly installment of the loan.

The monthly installment of a home loan consists of the principal loan amount and the rate of interest. Therefore, banks always favor a long-term loan so that the rate of interest is high. In order to get an affordable home loan or home loan balance transfer, the borrowers need to meet the eligibility criteria and do proper research in order to get the right loan provider. Banks are offering a low rate of interest due to the repo rate which significantly decreases the rate of interest that are banks and charge from the borrower.

What is a repo rate? 

Repo Rate is the rate at which RBI Offers money to financial institutions across the country. NBFCs need to borrow money from RBI in order to ensure smooth cash flow and the proper functioning of their organization. However, RBI tends to increase the repo rate to discourage lenders from borrowing money, which has the tendency to disrupt the country’s economy.

Why is the repo rate important?

 

Various loan-providing institutions have to deposit a certain amount of their customers’ money with the RBI and this is known as the Cash Reserve Ratio or CRR. Now when repo rates are slashed, the CRR amount also comes down. In such a case, NBFCs reduce your interest charges as they don’t have to deposit a huge amount in CRR. This eventually decreases the total loan cost which makes it affordable for the borrower. 

Things to note

When RBI announced a slash in the repo rate, banks and other financial institutions were immediately asked to reduce their interest. However, it was noticed that when RBI cut down the RR, only a few banks made the change in their loan rates. In the year 2012, RBI reduced RR by.50%, but the bank only reduced a mere 0.25%. Again in 2013, RBI reduced repo rates by 0.25%, but financial institutions increased their interest from around.25% to.30% instead. Therefore, it is important to understand the working of the banks so that borrowers get the right rate of interest on the loan. 

Wrapping up

In order to avoid a home loan balance transfer, it is important to know about the repo rates and take an affordable home loan. It is important to get an affordable home loan so that the burden is less.