The prevailing Covid-19 pandemic has forced the Reserve Bank of India to cut the repo rate on multiple occasions in the recent past, which, in turn, has resulted in record-low home loan interest rates offered by banks.
Ever since the central bank directed the banks to introduce an external benchmark-linked loan regime in October last for faster transmission of rate cut benefits to borrowers, most of the banks have launched repo-linked home loans. As a result, most banks have now lowered their home loan interest rates compared to those of last year while some are offering rates under 7% per annum.
So, if you have the necessary margin money, a stable income and a stellar credit score (usually above 750-800), this might be a good time to sign up for a home loan to benefit from these record-low rates. If you’re servicing a Marginal Cost of Lending (MCLR) or a Base-Linked Rate (BLR) home loan, your EMIs are also likely to reduce due to the repo rate cut if they haven’t already. But you might have to wait a bit longer for the reduced rates to come into effect, informs BankBazaar.
Therefore, you might want to move to a repo-linked loan offered by your bank or any other bank to save on your interest outgo after due diligence and factoring in the re-financing charges like the processing fee or the loan conversion charges. You’ll also be well-advised to consider other critical parameters like ease of the loan conversion process and the actual money saved.
However, do note that your repo loan’s EMIs may quickly increase whenever the RBI decides to increase the repo rate in the future. Additionally, if you’re servicing a loan for some time now and you currently have access to surplus funds, this might also be a great time to make substantial prepayments and reduce your loan burden to become debt-free faster.
It will be worthwhile to point out here that a repo-linked loan usually consists of the repo rate + bank’s margin + borrower’s risk spread. Meaning, the best rates are offered only to those eligible borrowers who have a stellar credit score. Not just that, if your credit score falls anytime during the course of your home loan, your EMIs are likely to increase until your score improves, says BankBazaar.
So, make sure you check your credit score before applying for a loan and take necessary corrective measures (like clearing all your loan and credit card dues in full on time) to improve it if it’s low before signing up. Also, keep checking your credit score regularly and never miss a single repayment throughout your loan tenure to continue enjoying the best possible rates.
Here are the top banks in India — including SBI, HDFC, UBI and ICICI Bank — which are currently offering home loans starting at under 7% p.a.:
