RBI MPC Repo Rate Cut: With the RBI deciding to reduce repo rate by 25 bps, experts urge homebuyers to ensure income stability before investing in a house. The Reserve Bank of India (RBI) on April 9 announced another 25 basis points cut in the repo rate, following a similar reduction in February. This move was widely anticipated, especially after the RBI Governor had hinted at further rate cuts in the previous review. With this, the central bank has now delivered a cumulative 50 bps cut so far.
But does this mean it’s the right time to buy a house? The answer isn’t so straightforward. While lower interest rates can make home loans more attractive, several other factors need to be weighed before making such a long-term financial commitment. An interest rate cut of 25 bps will naturally mean that equated monthly instalments will come down. Let us see what happens in the case of three scenarios.
If you take a home loan of ₹50 lakh, the EMI at the original interest rate of 8.25% would have been ₹42,603. However, with the revised interest rate of 8%, your EMI will now be ₹41,822. This results in a monthly saving of ₹781. Over the full loan tenure of 20 years, this translates to a total interest saving of ₹1,87,507.
For a home loan of ₹80 lakh, the EMI under the original interest rate of 8.25% would be ₹68,165. With the revised rate of 8%, the EMI comes down to ₹66,915. That’s a monthly saving of ₹1,250 and a total interest saving of ₹3,00,011 over 20 years.
In the case of a home loan of ₹1 crore, your EMI would have been ₹85,207 at 8.25% interest. With the interest rate now reduced to 8%, your revised EMI would be ₹83,644. This brings you a monthly relief of ₹1,563, and over the course of 20 years, your total interest outgo will be lower by ₹3,75,014.
Lower interest rates are definitely good news. But this alone should not be a reason to buy a house.
“In the present scenario, look for stability of your income. The US is expected to go into a recession and even though we may not be in a technical recession, there could be a general slowdown and repercussions in terms of job losses. Buying a home is a long term commitment, so one needs to make a financially sound decision,” says Abhishek Kumar, Securities and Exchange Board of India (Sebi) Registered Investment Advisor (RIA) and Founder and Chief Investment Advisor, SahajMoney, a financial planning firm.
