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Home loan getting pegged to RBI’s repo rate is a win for customers, says Adhil Shetty, CEO of Bank Bazaar.

“The beauty of (linking to the) repo rate is every three months when the RBI cuts (revises) the repo rate, the loan rate follows,” he said in an interview to Money9.

Fixed or floating interest rate?

The dilemma of deciding between a fixed or floating home loan is not a debate anymore. In a fixed interest rate loan, the interest rate is fixed for a period of five years. After five years, the bank may exercise its right to change it.

“If you’re debating between a fixed and a float, while in principle a fixed (rate loan) guarantees that your rate is fixed, the floating rates are far more attractive,” Shetty added.

Does a changing repo rate impact EMI?

No. While a reduced repo rate will reduce a home loan’s interest rate, it does not reflect in a lowered EMI. The loan tenure, however, gets reduced. This process is automated and does not entail the customer making trips to the bank of filing applications.

“You just get a message and an email saying your loan rate has gone down. The bank will not change your EMI. Your EMI remains the same, but because your rate has gone down and you’re paying the same EMI, it will reduce the tenure,” Shetty said.

Existing borrowers may refinance

In case of an on going home loan, the customer has an option to refinance it at the prevalent lending rates. However, there are costs involved that may need to some calculation to assess the real benefit of switching over from an existing scheme to another.

First check the rate being offered and corresponding savings on the EMI. If the saving component is significant after accounting for the bank’s processing fee, the refinancing may be a good idea.