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Repo Rate Hikes Impacts Home Mortgages Demand

Posted by John Rayan on April 13, 2023
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Repo rate is the interest rate at which the RBI lends money to commercial banks. When the repo rate increases, it leads to an increase in the borrowing costs for commercial banks. This, in turn, affects the interest rates offered by banks on loans, including home loans. Therefore, an increase in the repo rate generally leads to an increase in the cost of borrowing for homebuyers in India.

Here’s how increasing repo rates impact home buyers:

Increased EMIs: Home buyers who have taken a floating interest rate home loan see an increase in their EMIs (equated monthly installments) if the repo rate is increased. This means they have to pay a higher amount each month towards their home loan.

Reduced affordability: An increase in home loan interest rates due to a repo rate hike may lead to reduced affordability for potential home buyers. Higher interest rates lead to higher EMIs, which means that some people may not be able to afford to buy a home.

Lower Home Loan Eligibility: With higher interest rates, the eligibility for home loans may reduce. This means that some borrowers may not be able to borrow the same amount of money as they would have with lower interest rates.

Impact on Home Loan EMI Budget: With higher EMIs, home buyers would need to rework their monthly budgets to accommodate the increased EMI payments. This could impact their overall financial planning.

Lower demand for housing: Real estate is driven with sentiment in India. As the cost of borrowing for home loans increases, demand for housing may decrease. This could impact the real estate market negatively, with fewer people willing to buy homes, leading to a drop in housing prices.

Impact on Loan Transfer: With higher interest rates, some home buyers may consider transferring their home loans to other lenders who offer lower interest rates. This could lead to an increase in loan transfer requests.

Impact on Investors: With higher interest rates, some potential home buyers may prefer to invest their money in other instruments rather than buying a home. This could lead to a slowdown in the real estate sector.

Impact on developers: An increase in repo rates could impact real estate developers, as higher borrowing costs would increase the cost of construction and reduce the demand for homes.

An increase in repo rates in India impacts home buyers by increasing their borrowing costs and reducing affordability. It also impacts the real estate market by reducing demand for housing and potentially lowering housing prices.

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