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Repo rate hike paused by RBI. How does it affect house-loan borrowers and investors?

The RBI’s Monetary Policy Committee has decided to keep the repo rate unchanged at 6.5 percent.

This is due to the current headline inflation 5.4 percent being inside the tolerance range of RBI’s policy.

But what is the repo rate? What is the Inflation rate? How does this matter to you as a home-loan borrower or an investor? Allow us to simplify it all for you.

  1. Repo Rate is the interest rate at which the RBI lends money to other banks for short periods. This influences the interest you pay on your loan because your payment has to cover the repo rate your bank has been charged by the RBI.

  2. Headline inflation is the overall rate at which the general price level of goods and services in the country has been rising. Higher the inflation, higher the cost of living and vice-versa.

So how does the pause in the repo rate hike benefit you? Read on.

The Repo rate has been increasing by 250 basis points over the last 15 months. And home-loan borrowers have been struggling with this because the hike in repo rate has translated to a 160 basis points hike in home-loans. Because of the pause, if you’re a home-loan borrower, you can breathe a sigh of relief.

But nevertheless, you should be expecting future spikes in the rate due to the increasing inflation in the country.

So how do you prepare yourself for the possible interest hikes?

The CEO of BankBazaar, Adhil Shetty had some things to say. And we are simplifying it for you:

  1. Continuing with existing scheduled payments might not be prudent and that borrowers must rethink their repayment strategies.

  2. Prepaying 5% of your existing loan will help you lower your loan’s exposure to higher rates in the future.

  3. Refinancing if under the new arrangement, your interest and tenor are beneficial to you.

One other option is to switch your floating loan for a fixed interest loan. But there are two sides to the coin. While it may seem beneficial to do the switch, if the interest rates are slashed, you will also be paying more than what you could have paid under the floating rate loan schedule.

Okay, all of this is fine, but you’re planning on making fixed deposits. They also have interest rates. Would they also have a bearing?

Yes, obviously. So how do you take advantage of the impending interest rate hikes?

Through the last 15 months, the FD rates have increased in congruence with the Repo Rate. But what’s interesting is that even in the past, where there have been pauses in Repo Rate hikes, FD rates have nudged a tiny bit upwards!

So most experts believe the best time to get FDs is now as the rates are at their maximum. The most prudent tenure to invest would be 1-3 years.

Additionally, 10 year G-Sec yields have recovered from the 7% level in June to 7.2% in August. So this is also an avenue that might warrant your attention if you are looking for a longer investment horizon.

But all this being said and done, it really is difficult for a person to keep constant track of the markets, be it investment or debt, to make the most of them. Most individuals have full time jobs that require the whole of our time. And that is where, we at Sawingz, come to your rescue. Not only do we help you manage your existing wealth, we also constantly explore opportunities to create wealth for you per your investment objectives.

We also have a dedicated team to guide you if you’re someone looking to avail a home-loan at the best rates in the market. We hold your hand right from letting you explore the different products out there, beyond the loan disbursal formalities to suggesting the optimum repayment strategies that would result in the least interest payments possible.

To know more about either of the services, schedule a free call with us through the Calendar widget on our homepage.

The RBI maintained the existing Repo Rates. And now you know how it affects you, as a borrower and an investor.

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