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Interest Rates on Home Loans: Home Borrowers Face Higher Expenses as Goodbye to Easy Money


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Home loan borrowers brace for further increases in their monthly spending on their mortgages as lenders follow the Reserve (RBI) signal and raise interest rates at the fastest pace in at least a decade.

On Saturday, Housing Development Finance Corp (

), India’s largest mortgage financier, raised its benchmark prime rate (RPLR) for the fifth time in the financial year ahead of the RBI’s monetary policy meeting scheduled for August 5.

HDFC increased its RPLR by 25 basis points, bringing its minimum lending rate to 7.80% from 7.55% before the hike. One basis point is 0.01 percentage point.

The hike means that the equivalent monthly installments (EMI) on, say, a loan of ₹50 lakh for a term of 20 years, will now increase to ₹41,202 per month at 7.80% from ₹40,433 per month at 7.80%. .55% before the rise.

In total, HDFC has raised its lending rate by 115 basis points since May. India’s biggest lender raised rates twice in May and June before the latest hike.

Analysts said the latest hike in the HDFC was preemptive as the central bank is expected to raise the benchmark repo rate, the rate at which banks borrow funds from it, by at least 25 basis points this week.

Raj Khosla, managing director of financial market MyMoneyMantra, said the rise in rates was the fastest in a decade and was driven by an extraordinarily easy liquidity situation which kept rates artificially low.

“In a sense, it’s a return to normal rates, but yes, the pace of increases is the fastest we’ve seen in recent memory. Rates are also rising in an extraordinary situation, with the global macro economy playing a role. more important in the context of the conflict in It’s fair to assume that rates could go up a bit from here,” Khosla said.

Borrowers have had to deal with rising EMIs every month for the past three months. For example, from a low of 6.40% in April, a top-rated HDFC borrower now pays 7.80% with a monthly EMI on a ₹50 lakh loan rising from ₹36,985 to ₹41,202.

Main rival of HDFC and market leader in real estate loans among banks

() also raised its benchmark repo-linked rate by up to 90 basis points this fiscal year.

Alok Choudhary, managing director of retail at SBI, said the bank would charge rates based on its cost of funds after the RBI’s monetary policy decision on August 5. “We will look at possibilities after the RBI policy. Our benchmark external lending rate is linked to the repo rate and reflects RBI raising rates,” Choudhary said.

An ICICI spokesman also said the bank would take a call on rates after the RBI meeting.

The repo rate at 4.90% is on its way down from a 15-year low as the central bank aggressively cut rates to support the economy during the Covid-19 pandemic.

However, global volatilities such as rising oil prices have led to rising inflation around the world. India’s inflation is stubbornly above 7% and above the RBI’s 6% outer threshold forcing the central bank to abandon its support for growth at all costs.

Adhil Shetty, CEO of BankBazaar, said expectations are that the repo will come in at 6% over the next 12 months from 4.90% currently and it is fair to assume that home loan borrowers will also see an increase. similar rates. “It is true that rates have risen sharply and they are expected to rise further. Rates have reached historic lows. The increases have been quite steep over the past three months and borrowers whose rates are tied to the repo can expect a moment. Those not tied to the benchmark might see a lagged impact, but they will see an increase,” Shetty said.

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