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In the ever-evolving landscape of the Indian economy, the relationship between interest rates and mortgage rates is pivotal. As the Reserve Bank of India (RBI) maneuvers through economic challenges, its policies significantly influence the housing sector. This blog delves into the intricacies of this relationship and its implications for homebuyers.
The Economic Backdrop The RBI's monetary policy, particularly the repo rate, is a critical determinant of mortgage rates in India. Since May 2022, the RBI has increased the repo rate by 225 basis points to combat inflation. This hike has a direct bearing on the lending rates of banks, subsequently affecting the mortgage rates offered to consumers.
The Ripple Effect An increase in the repo rate typically leads to a rise in mortgage rates as banks pass on the higher cost of borrowing to customers. For instance, a home loan borrower who secured a loan at a 6.95% interest rate in April 2022 saw their rate jump to 9.20% following the RBI's rate hikes. This translates to a significant increase in the monthly installment (EMI), impacting the affordability of loans for potential homeowners.
Current Mortgage Rates As of 2024, mortgage rates in India vary across different lenders. Private sector banks offer rates ranging from 8.75% to 12.70%, while public sector banks have rates between 8.40% and 10.75%. These rates are subject to change based on the RBI's policy decisions and the prevailing economic conditions.
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