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    This is where your fixed income and home loan rates can be in the next one year

    This is where your fixed income and home loan rates can be in the next one year

    This is where your fixed income and home loan rates can be in the next one year
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    By Anshul   IST (Updated)


    Reserve Bank of India's (RBI) Monetary Policy Committee (MPC) is expected to further raise the repo rate — the key interest rate at which the RBI lends money to banks — in its August policy meeting decision.

    The Reserve Bank of India (RBI) is expected to hike 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 25-50 basis points from the central bank in this upcoming policy.
    With this, the expectations are high that there will be an impact on the deposit and lending rates of the bank too.
    What happens to FDs and loan rates when RBI hikes repo rate?
    In a rate hike scenario, lenders generally raise interest rates on home loans, car loans, and personal loans — which in return hit consumers pockets when they pay equated monthly instalments (EMIs) back to the lender.
    Also, fixed deposits become attractive in this situation as banks usually raise interest rates. In the last two policies, the central bank hiked the repo rate by 90 basis points and consequently deposit rates were increased by the banks.
    Where to expect the repo rate in the coming months?
    RBI began the rate hike cycle in May this year with a 40 basis points rise in repo rate followed by another hike of 50 basis points in June. So far, RBI has hiked the repo rate by 90 basis points.
    Experts now expect the repo rate to go up by 25-50 basis points  in August
    If these hikes continue, where can we expect home loan and FD rates to stand in a year?
    Any hike in the repo rate could trigger cuts in interest rates applicable to savings and fixed deposits, and, on the other hand, make home and auto loans more expensive.
    So, the quantum of changes in fixed income and home loan rates should be in tandem with RBI rate hikes
    While speaking to CNBC-TV18, Adhil Shetty, CEO, Bankbazaar said that the expectation is that the repo will settle at 6 percent from the current 4.9 percent over the next 12 months.
    "Under these circumstances, rate hikes are a given. Existing borrowers will feel the pinch and so will new borrowers as lenders have started raising rates preemptively. Given the situation, existing borrowers need to plan for a hike of roughly 2 percent on their lowest interest rate as of Feb-March 2022," Shetty said.
    According to Ratan Chaudhary - Head of Home Loans, Paisabazaar, loan interest rates should go up as long as the inflation rates continue to exceed RBI’s tolerance band and major central banks across the world continue to increase their respective policy rates.
    "Hence, loan borrowers should expect their EMIs and overall interest cost to steadily increase, at least in the near term," Chaudhary said.
    So, what should home loan borrowers do?
    As and when the interest rates increase, existing loan borrowers can either continue with the tenure increase option or opt for EMI increase option, with the consent of the lender. The increase in the interest cost would be higher for the tenure increase option than the EMI increase option. Thus, existing floating rate borrowers having adequate surpluses should try to prepay their home loans and preferably opt for the tenure reduction option to generate higher savings in interest cost, Chaudhary told CNBC-TV18.com.
    "Home loan borrowers, both fresh and existing ones, having restricted liquidity should opt for the home saver option," he said.
    Under this facility, an overdraft account is opened in the form of savings or current account where the borrower can park his/her surpluses and withdraw from it as per his financial requirements. The interest component is calculated after deducting the surpluses parked in the savings/current account from the outstanding home loan amount.
    This would allow home loan borrowers to derive the benefit of making prepayments without sacrificing their liquidity.
    "Existing home loan borrowers who have witnessed significant improvements in their credit profiles after availing home loans should explore the possibility of interest cost savings through home loan balance transfer. Their improved credit profile may make them eligible for home loans at much lower rates from other lenders. This would help them to reduce their EMI burden and overall interest cost," Chaudhary added.
    Where are FD and home loan rates at present, and where can they reach?
    For instance, currently State Bank of India (SBI) — India's largest lender by assets — has interest rates in the range of 2.9-5.5 percent for fixed or term deposits of up to five years.
    Here are the FD rates offered by key banks:
    Name of BankFor General Citizens (p.a.)For Senior Citizens (p.a)
    State Bank of India2.90% to 5.50%3.40% to 6.30%
    HDFC Bank2.75% to 5.75%3.25% to 6.50%
    Kotak Mahindra Bank2.50% to 5.90%3.00% to 6.40%
    Punjab National Bank3.00% to 5.60%3.50% to 6.10%
    Canara Bank2.90% to 5.75%2.90% to 6.25%
    Axis Bank2.50% to 5.75%2.50% to 6.50%
    Here are the latest rates offered by banks on home loans:
    BanksStarting Interest Rate (p.a.)
    State Bank of India7.55%
    Union Bank of India7.40%
    Bank of Baroda7.45%
    Central Bank of India7.40%
    Bank of India6.90%
    Axis Bank7.60%
    Canara Bank7.05%

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