RBI reduced the repo rate, but why did the home loan EMI not reduce? Learn the reason and remedies

After a long wait, the Reserve Bank of India (RBI) finally started cuts in repo rate this year. So far, a total of 0.50% (fifty basis points) have been reduced twice, due to which the repo rate has come down from 6.5% to 6.0%. This move of RBI had raged a wave of happiness among the people who took home loans. They felt that let’s go, now the burden of EMI going every month will be slightly lighter. However, when EMI did not decrease, many people have become disappointed.

Rate cut and EMI decrease: Why does it take time?

First of all, it is important to understand that reducing the repo rate of RBI means that the banks will now give new loans at a slightly affordable interest rate and old. Floating rate The interest rates of loans will also be reduced. However, this change happens immediately, it is not necessary.

Sometimes it takes banks a few weeks to adjust their interest rates. So, if your EMI does not decrease immediately after the RBI announcement, then you may have to wait a little. But if there is no difference even after a long time, then you are not alone, there may be some reasons behind it.

Whether your EMI will be low or not depends on many things

Experts say that every home loan takes the benefit of RBI rate cut, it is not necessary. It depends on some things:

1. Loan type: Is your loan fixed interest rate or floating interest rate? There is no effect of decreasing the repo rate on the fixed rate loan EMI. Benefits are available only on loans with floating rates.

2. Loan benchmark: Loans with floating rate also have to see which benchmark your loan is connected to.

Loan benchmark rules have changed (from October 2019)

Since October 2019, most banks have linked the new floating rate loan directly to the repo rate of RBI (External Benchmark lending Rate – EBLR). But, if your loan from October 2019 First If it is, then it may be like old systems MCLR (Marginal Cost of Funds Based Lending Rate) Or Base rate Be connected with

The impact of repo rate cut on MCLR or base rate loans is either visible either late, or does not look as much as the repo-linked loan. Banks fix interest rates only keeping their funding costs, operational expenses and customer’s credit risk premium.

So what is the best way for you?

If your home loan EMI has not reduced even after reducing the repo rate of RBI, then take these steps:

1. Find out your benchmark: First of all, find out from your bank, which benchmark (repo rate, MCLR or base rate your home loan is related to.

2. Consider switching the loan: If your loan is based on the old system (MCLR or base rate), then you will give the application in the bank and new Repo Rate Linked (EBLR) You can get switched in the system.

3. Take care of credit score: If your credit score has improved after taking a loan, the bank can easily approve your loan. This will increase your chances of decreasing your EMI.

So, by talking to a little information and bank, you can also take advantage of the repo rate cut!