Finally, it depends on how commercial banks will move their home loan rates. For now, bankers are indicating that they may not lower the rates. Which would be rather sad, given that the interest rate signals — and actions — from the government point to the lowering of rates.
In case the benefits of the repo-rate cut are passed on fully, it would reduce the equated monthly instalment (EMI) of households in a big way. For a 20 year home loan of Rs 50 lakh, a 1 percentage point cut in the interest rate would mean a saving of over Rs 3,400 every month or an annual saving of more than Rs 41,000 — enough to pay 80 per cent of one EMI.
The repo rate has been on a rise since November 2005, which led to a steep rise in the EMIs on existing floating rate home loans. The cut, first since March 2004, is expected to kickstart the reverse cycle. And if this trends continues, there’s good news ahead.