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How rate cuts impact home loans

The good news for people is that several institutions have been reducing their home loan rates. Arnav Pandya tells us more about the reduction...

india Updated: Feb 21, 2008 22:28 IST

The good news for people is that several institutions have been reducing their home loan rates. This is applicable for existing borrowers who have taken money and are now in the process of repaying the amounts and this leads to a relief for the people. The reduction has helped reduce their burden but while feeling happy there is one more thing that they need to understand which, is the exact time period, when the benefit will be applicable.

Resetting time

Every person who has taken a loan will have a specific time period that is applicable to them, which is also known as the resetting time. Each and every loan has a specific time period at which the floating rate is reset by the lending institution. From the date of the reset the new rates will be applicable. The entire scheme of things works according to this schedule and this is the most crucial part of the entire process.

So for example if there has to be a resetting every three months, then this will be applicable for the individual according to their own schedule. If a person has a resetting that is coming up in the month of March and the interest rate is changed in the month of February, then this will not be applicable immediately but will be applicable only when the change is applicable for the borrower.

Change in the rate

The focus also has to be on the change in the right type of rate because there is a linking of specific figures. There are specific rate like the prime lending rate to which the housing loan interest rate is linked and when this is changed then the home loan rate will witness the impact. This is the reason why the appropriate change in rate has to be considered and then the impact has to be seen in the picture.

Waiting period

Since most people will have the number of equated monthly installment that will change and not the amount of the EMI, then the applicability might not be immediately evident. But what is also important is that the proper understanding of the applicability has to be present. This can mean some time period for which the benefit might be in abeyance but the overall impact is the number of outstanding EMI will reduce.