March 22, 2023

The Reserve Bank of India (RBI) announced a repo rate hike of 50 basis points in its monetary policy review meeting held on August 5, 2022. This was the third consecutive rate hike by the central bank.

Any increase in repo rate will directly impact on loans and EMIs of borrowers. Both existing and new customers will be impacted. Since RBI’s rate hike cycle started in May 2022, banks and other lenders have been increasing loan interest rates. Due to this borrowers have seen their cost of borrowing rising.

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How to transfer your home loan balance

If you are finding it difficult to service your home loan EMIs due to the rising interest rates, doing a balance transfer to a lender with competitive home loan interest rates, could be a good idea. However, one should analyse the advantages and disadvantages and calculate the additional savings that result from choosing a home loan balance transfer.

Here is a look at banks offering the cheapest home loan interest rates.

RBI, in its circular, has directed banks to link their retail lending interest rates to any of the following external benchmarks:

  • RBI’s repo rate
  • Government of India 3-months Treasury bill yield published by Financial Benchmarks India Pvt. Ltd. (FBIL)
  • Government of India 6-months Treasury bill yield published by FBIL
  • Any other benchmark market interest rate published by the FBIL

Most banks have chosen RBI’s repo rate as their choice of external benchmark. The lending interest rate linked to repo rate is known as Repo Rate Linked Lending Rate (RLLR). RLLR is made up of RBI’s repo rate plus spread or margin.

Home loan repayment

Typically, Equated Monthly Instalments (EMI) are used to repay a mortgage. The principal and interest components of the EMI are designed so that in the early years of your loan, the interest component will be considerably bigger than the principal component, however in the later half of the loan, the principal component will be much larger.

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