This is where your fixed income and home loan rates may be over the next year

By Anshul STI (Update)


The Monetary Policy Committee (MPC) of the Reserve Bank of India (RBI) is expected to further increase the repo rate – the key interest rate at which the RBI lends money to banks – in its decision of the political meeting in August.

The Reserve Bank of India (RBI) is expected to raise the repo rate – the rate at which the RBI lends money to commercial banks – for the third consecutive time on Friday. Experts predict a rate hike of 25 to 50 basis points from the central bank in this upcoming policy.

With this, expectations are high that there will also be an impact on the bank’s deposit and lending rates.

What happens to FDs and lending rates when RBI raises the repo rate?

In a rate hike scenario, lenders typically raise interest rates on home loans, auto loans, and personal loans – which in turn hit consumers’ pockets when they repay equivalent monthly payments (EMIs) to the lender.

Also, time deposits become attractive in this situation as banks usually raise interest rates. In the last two policies, the central bank raised the repo rate by 90 basis points and as a result deposit rates were raised by banks.

Where to expect the repo rate in the coming months?

RBI started the rate hike cycle in May this year with a 40 basis point hike in the repo rate followed by another 50 basis point hike in June. So far, RBI has increased the repo rate by 90 basis points.

Experts now expect the repo rate to rise 25 to 50 basis points in August

If these increases continue, where can we expect mortgage and FD rates to be in a year from now?

Any increase in the repo rate could lead to lower interest rates applicable to savings and time deposits and, on the other hand, make mortgages and car loans more expensive.

Thus, the quantum of changes in fixed income and mortgage rates should go hand in hand with the RBI rate hikes.

By talking to CNBC-TV18, Adhil Shetty, CEO of Bankbazaar, said the repo is expected to stabilize at 6% from the current 4.9% over the next 12 months.

“Under these circumstances, rate hikes are a no-brainer. Existing borrowers will feel the pinch, as will new borrowers, as lenders have begun raising rates preemptively. Given the situation, existing borrowers should plan up about 2% on their lowest interest rate in Feb-March 2022,” Shetty said.

According to Ratan Chaudhary – Head of Home Lending, Paisabazaar, interest rates on loans are expected to rise as long as inflation rates continue to exceed RBI’s tolerance band and the world’s major central banks continue to raise their respective policy rates.

“Therefore, borrowers should expect their EMIs and overall interest charges to steadily increase, at least in the short term,” Chaudhary said.

So what should mortgage borrowers do?

As interest rates rise, existing borrowers can either continue with the option to increase tenure or opt for the option to increase EMI, with consent of the lender. The increase in interest charges would be higher for the increase in tenure option than for the increase in EMI option. Thus, existing variable rate borrowers with adequate surpluses should try to prepay their home loans and preferably opt for the reduced tenure option to generate greater savings on interest costs. , Chaudhary said.

“New and existing home loan borrowers with limited cash should opt for the home savings option,” he said.

Under this facility, an overdraft account is opened in the form of a savings account or a current account where the borrower can park his surpluses and withdraw them according to his financial needs. The interest component is calculated after deducting the surpluses parked in the savings/current account from the outstanding amount of the mortgage.

This would allow home loan borrowers to take advantage of prepayments without sacrificing cash.

“Existing home loan borrowers who have seen significant improvements in their credit profile after availing home loans should explore the possibility of saving interest charges through home loan balance transfer. Their improved credit profile can make them eligible for home loans at much lower rates from other lenders.This would help them reduce their EMI burden and overall interest cost,” Chaudhary added.

Where are FD and home loan rates now, and where can they go?

For example, the State Bank of India (SBI) – India’s largest lender by assets – currently has interest rates in the range of 2.9-5.5% for fixed or term deposits. for a maximum period of five years.

Here are the FD rates offered by the main banks:

Name of the bank For ordinary citizens (pa) For seniors (pa)
National Bank of India 2.90% to 5.50% 3.40% to 6.30%
HDFC Bank 2.75% to 5.75% 3.25% to 6.50%
Kotak Mahindra Bank 2.50% to 5.90% 3.00% to 6.40%
National Bank of Punjab 3.00% to 5.60% 3.50% to 6.10%
Canara Bank 2.90% to 5.75% 2.90% to 6.25%
Axis Bank 2.50% to 5.75% 2.50% to 6.50%

Here are the latest rates offered by banks on home loans:

Banks Starting interest rate (pa)
National Bank of India 7.55%
Citibank 6.65%
Union Bank of India 7.40%
Bank of Baroda 7.45%
central bank of india 7.40%
Bank of India 6.90%
Axis Bank 7.60%
Canara Bank 7.05%

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