Home loans may become cheaper as RBI cuts repo rate

Purchasing a property is no joke. It is not an easy decision to make. It is one of the biggest decisions you will have to make in your life time because it involves a huge chunk of your money. In most cases, a home loan will be the only way in which a family or an individual will be able to afford a property. You will have to fund some of the down payment yourself as most banks will be able to give you only about 80% of the total amount required to purchase the house. Home loans do not come cheap. The Equated Monthly Instalments will eat into a fair chunk of your salary. You should set your budget as per your spending power. About 40% of your salary will go towards your EMI. That’s quite a chunk. One of the biggest complaints a middle class home buyer has is that home loans are an expensive affair. Most people spend their lifetime working to ensure that their loan is paid off. The Reserve Bank of India is the institution which sets the policies which will ultimately have the biggest bearing on home loans and how expensive or cheap they will turn out to be. The central bank lends out to all the other banks at a key lending rate. This is called the repo rate. When the repo rate goes up, EMIs tend to go up. Conversely when they come down, the EMIs will have to come down. Over the last two years, the RBI has gone a repo rate cutting spree. In the last two years along this institution has cut the repo rate by 175 basis points. The most recent cut came in October 2016 when the central bank cut the rate by 25 basis points and brought the rate down to 6.25%. This lowest the rate has been at in the last six years. These rate cuts become useless if the banks which are lending many to the common man do not lower their rates. The RBI has on many instances asked the banks to ensure that the transmission of the rate cut happens and that their consumers get the benefits of the cut. Bankers have been most reluctant to do this so far. So the present EMIs are actually not reflecting the cuts. One would hope that the banking community ensures that the consumers receive the benefits of the cuts soon. If you are out to buy a residential property then a good time to do that would be after the EMIs come down. Follow the news closely and keep an eye out for any announcements pertaining to banks cutting their lending rates. This could happen soon. So if you have been waiting to buy an apartment in Chennai or Mumbai, wait for a bit more before you make the decision. The market conditions might work in your favour if you do.