Confused About The Interest Rates While Buying Your Property? Rbi To The Rescue

By Author: Finway
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Living in your house is surely a privilege that everyone should have, but today the property rates are shooting sky high without showing any mercy to your salary as well as savings. Although a number of banks provide different types of home loans that could provide you financial aid, still the process of obtaining the right home loan for the target property can be a really tedious task. The availability of multiple banks with multiple policies about different loans surely gives you the privilege to select the right loan for you, but the big question still remains the same, how? How to know what is good and what is bad? How to assess whether the bank is actually willing to help you, or is it just playing to your needs so that it could earn some revenue from you? This confusion haunts many, especially the people applying for the loan for the first time. There is always a risk involved in the process.

Bad experiences teach lessons that help us make the right decisions ahead, but when it comes to home loans, a bad experience can provide a loss so fatal and severe, which is just not worth the lesson. So, you have to think ...
... carefully before selecting the appropriate loan from all self-claiming low-interest home loans out there. The Reserve Bank of India could provide you the aid. The RBI has set up an external benchmark to which all the commercial banks link up their interest rate of all the retail loans. The following are the benchmarks that banks can choose:

• RBI Repo Rate
• Government of India 3-month treasury bill yield published by Financial Benchmarks India
• Government of India 4-month treasury bill yield published by Financial Benchmarks India
• Any other benchmarking interest rate set by Financial Benchmarks India

Most of the banks use RBI’s Repo Rate for determining the interests of home loans in Delhi, Mumbai, Pune, Lucknow, or any other part of India.

What is the RBI Repo rate?
The repo rate is the interest rate at which the RBI bank lends money to the licensed commercial banks. It is decided by the RBI Monetary Policy Committee headed by the RBI Governor. The RBI keeps inflation in check with the use of repo rate and has directed all the banks to link their interest rate to the repo rate. The interest rate linked to the repo rate is called a repo rate linked renting rate (RLLR) which includes the repo rate plus the margin and risk premium set by the bank. Banks are allowed to charge margin and risk premium over the external benchmark. Each and every bank set up their own margin cost but not above a certain value.

In this way, RBI controls the interest rate of the market. By cutting the repo rate the cost of funds of commercial banks gets reduced which makes the banks able to give their loans at a low-interest rate. It develops transparency and better and faster transmission of the policy rate changes which was the hurdle in the case of the Marginal Cost Based Lending Rate.

Overview:
Choosing the appropriate home loan can be a confusing and hefty task. While there is an advantage that so many options are available to choose from, still the right loan that provides the proper amount on the basis of your credit score and a low-interest rate on the basis of your earnings is very hard to find. To reduce the differences between the interest rate between the banks the RBI introduces a repo rate which acts as an external benchmark for the interest rate on the loans for all the banks out there. The banks could add up the marginal and risk premium above that external benchmark but that too over a limit.