Unlocking Savings: Navigating the Expected Home Loan Interest Rate Drop in 2024

Introduction

The years 2022-23 posed challenges for home loan borrowers, grappling with a steep 20% increase in EMIs. However, as 2024 begins, a glimmer of hope emerges with forecasts hinting at a potential interest rate reduction between 0.5% and 1.25%. This article delves into the reasons behind this expected rate cut, its potential impact on home loan EMIs, and strategies for borrowers to optimize their savings.

Why and When to Anticipate Interest Rate Reduction

The Reserve Bank of India (RBI) responded to global inflation by implementing a series of repo rate hikes from May 2022 to February 2023, resulting in a cumulative 2.5% increase. This compelled lenders to raise interest rates, burdening home loan borrowers. However, with global inflation subsiding, experts predict the RBI may initiate repo rate reductions in the second quarter of 2024, potentially in June or July.

Factors such as declining retail inflation and recognition of high interest rates impeding economic growth contribute to the likelihood of a repo rate cut. Pramod Kathuria, Founder and CEO of Easiloan, suggests that as inflation eases, the RBI may ease monetary policy to support economic growth in 2024.

The expected reduction in the repo rate is estimated to be between 0.5% and 1.25%, with the first cut potentially occurring in mid-2024, according to Rahul Mehrotra, Managing Director & CEO at Religare Housing Development Finance Corporation Limited. Subsequent cuts may follow, with the total reduction subject to debate among experts.

Impact on Home Loan EMIs

While a potential reduction in home loan EMIs may be anticipated around mid-2024, the overall impact depends on factors such as the timing of the loan, the nature of the lender, and the type of interest rate regime. Home loan borrowers, categorized under BPLR, Base Rate, MCLR, or EBLR, may experience varying speeds and quantum of rate cuts.

A repo rate cut is expected to gradually decrease home loan EMIs, with the timing of adjustments dependent on individual lenders transmission mechanisms. Borrowers may experience different outcomes based on their lenders responsiveness, with adjustments typically occurring within 3-6 months of a repo rate change.

Estimates suggest a conservative reduction of approximately 50 basis points (bps) for 2024, primarily impacting EBLR home loan borrowers. On the optimistic side, a more substantial reduction of up to 1.5% is anticipated, varying based on the lender and loan type.

Refinancing Opportunities

For borrowers under older interest rate regimes like BPLR, Base Rate, or MCLR, switching to EBLR presents a viable option. Refinancing becomes more attractive if the current lenders rates remain higher than those offered by other banks. However, careful consideration is necessary to ensure the new bank or non-bank lender provides competitive rates.

In cases where non-bank lenders charge higher interest rates and resist switching to lower rates, refinancing with another bank or non-bank lender offering competitive rates becomes a sensible strategy.

Choosing Between EMI Reduction and Tenure Adjustment

As interest rates on home loans decrease, lenders typically offer borrowers the choice between reducing EMIs or decreasing the loan tenure. Opting for the same EMI, if affordable, can be advantageous as it accelerates the repayment process, helping borrowers become debt-free faster.

Conclusion

As 2024 unfolds, the potential reduction in home loan interest rates brings optimism for borrowers. Understanding the factors influencing these changes and strategically navigating refinancing options can empower individuals to make informed decisions, ensuring they benefit the most from the anticipated interest rate drop.

Have questions about your specific credit needs?

If you still have questions or doubts, you can tap into our secured lending expertise by signing up on our website: