If you have shortlisted your dream home and are looking for a home loan from a bank, you will find plenty of options. But it makes sense to do some research before picking one as a home loan is a long-term commitment and, typically, involves a huge sum of money. Moreover, now that the Reserve Bank of India (RBI) has asked banks to link all floating rate retail loans, including home loans, to an external benchmark from 1 October, your research needs to be sharper as it’s something new. Here are four things to check under the new regime.
RBI has identified a list of external benchmarks—three- or six-month Treasury bills (T-bills), repo rate or any other benchmark rates declared by Financial Benchmarks India Pvt. Ltd—to which banks can link their loans to. Most banks are using the repo rate as their benchmark, while Citibank has pegged its lending rate to three-month T-bills.
You need to look at the benchmark a bank uses because some of them could be more volatile than others. More volatility in rates would mean your equated monthly instalments (EMIs) will change frequently. “Benchmarks such as T-bills tend to be more volatile and are generally suited for customer in the higher income bracket as they may be okay with slightly higher changes in EMIs and are certainly not suitable for lower- and middle-income borrowers,” said Gaurav Gupta, founder and CEO, MyLoanCare, an online loan aggregator.
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