Home loan interest rate at multi-year low as RBI repo rate unchanged

Amid the spread of the Omicron variant, the Reserve Bank of India (RBI) decided to keep the repo rates unchanged at 4% and the inverted repo rate at 3.35% while maintaining an “accommodative” policy. This is the tenth consecutive time that the RBI has maintained the status quo amid current uncertainties for continued growth.

The RBI repo rate has a direct influence on the interest rate of the home loan. When he lowers the repo rate, the cost of borrowing for banks goes down and banks can pass this benefit on to customers.

“Having repo rates remain ‘unchanged’ is good for mortgage borrowers, as floating retail lending rates, which are directly linked to external benchmark repo rates, will continue at the lowest levels of the last two decades. The continuation of this low interest rate regime supports the overall affordability environment for some time to come and is welcome,” said Anuj Puri, Chairman of Anarock Group.

In 2018, the RBI ordered banks to switch to an external lending benchmark, so borrowers could reap the benefits of policy transformation. Since October 2019, banks have moved to the repo rate indexed lending regime. At present, the majority of banks offer home loans linked to the RBI repo rate. This way, borrowers can clearly see any change in the repo rate reflected in the EMI output.

The currently low interest rates on home loans, however, are subject to change. “While the window of opportunity for homebuyers to benefit from low interest rates has been extended for some time, it is unlikely to prevail much longer – sooner or later repo rates will rise. “, says Puri.

Positive for the real estate sector

At a time when the market expected a hike in the repo rate and a change in the central bank’s stance to “neutral” to be a precursor to future rate hikes, the “status quo” comes as a respite for the real estate sector. “Absent specific demand-side interventions in the 2022-23 budget, potential buyers may continue to benefit from lower home loan interest rates that are here to stay for now,” said Ramesh Nair, CEO-India and Managing Director-Market Development, Asia at Colliers.

Current mortgage rates

The majority of lenders now offer home loans starting at an interest rate of around 6.5%. Some of the lenders offering home loan rates are: State Bank of India (6.65%); HDFC (6.7 percent); Bank of Baroda (6.5%); and ICICI Bank (6.7%), according to information available on the lenders’ websites. These rates are indicative and the rates offered by the lender will depend on various factors.

“After a disappointing budget from a real estate point of view, the status quo on key rates was the least expected. The dovish stance needs to continue for some time as the prevailing interest rate of less than 7% per annum on home loans is a major factor for homebuyers when deciding to buy a home,” says Saransh Trehan, MD, Trehan Group.

Existing borrowers who took out loans before October 2019 can continue their loans linked to the marginal cost of funds-based lending rate (MCLR) or can switch to the repo-linked lending rate (RLLR). But before changing, the cost-benefit ratio must be assessed. One could wait a few months and try to get a clear idea of ​​the trend of interest rate movement. You can choose a lender who offers a low interest rate according to your profile.


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