March 22, 2023

A day after the Reserve Bank of India (RBI) hiked the repo rate and standing facility deposit rate by 50 basis points (100 basis points = 1%), many banks increased their home loan interest rates. One of the banks that have hiked is . As per the bank’s website, the Baroda Repo Linked Lending Rate (BRLLR) has been increased with effect from August 6, 2022. For retail loans, the BRLLR is 7.95%. The BRLLR is made up of the current RBI repo rate i.e., 5.40% and a mark-up/base spread of 2.55%, according to the bank’s website.

To calculate the interest rate effective on home, a risk premium is added to the BRLLR as well. As per the bank’s website, for salaried customers, a risk premium of 1.35% is added. The risk premium depends on various factors such as CIBIL score, job profile, loan amount etc. The effective rate of interest is between 7.95% and 9.30%. If an individual is a self-employed individual or non-salaried customer, then an additional 0.10% is charged as well. For staff members of the bank, the effective interest rate is 7.95% i.e. BRLLR.

How will this impact you?

With Bank of Baroda hiking the interest rate, your EMIs on home loans will hike. For individuals whose EMI is yet to be deducted from their bank account, the bank will calculate the EMI again before a deduction is made.

It is important to note that the new EMI calculation will be done on the basis of the outstanding principal amount, rather than the loan amount taken.

The EMI paid by you has two components – principal and interest. As the number of EMIs paid goes up, the principal amount repaid goes up and interest paid goes down.

Why did the RBI hike the repo rate?

Since the start of the financial year, the central bank has hiked the repo rate thrice now, including one off-scheduled announcement made in May 2022. RBI hiked the repo rate by 40 basis points in May. Then again in its June and August monetary policy reviews, the RBI hiked the repo rate by 50 basis points each time. The central bank has been on a rate hiking spree due to rising inflation. Retail inflation has remained stubbornly high at over 6 per cent for more than the past six months.

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