What is Repo Rate & How Does it Impact on Home Loan Borrower
Introduction
● Repo rate is the rate at which the central bank of a country (Reserve Bank of India in case of India) lends money to commercial banks in the event of any shortfall of funds. Repo rate is used by monetary authorities to control inflation.
● It is commercial banks borrow money by selling their securities to the Central bank of our country i.e Reserve Bank of India (RBI) to maintain liquidity, in case of shortage of funds or due to some statutory measures. It is one of the main tools of RBI to keep inflation under control.
● The repo rate and inflation have an inverse relation; an increase in the rate ensures a limited circulation of cash in the economy, attempting to control the rise in inflation.
● When the Repo Rate increases, lenders increase the interest rate on home land and customers find home loan expensive. This in turn forces them to increase their lending rates.
Impacts of Repo Rate
● When you borrow money from the bank, the transaction attracts interest on the principal amount. This is referred to as the cost of credit. Similarly, banks also borrow money from RBI during a cash crunch on which they are required to pay interest to the Central Bank. This interest rate is called the repo rate.
● Repo stands for ‘Repurchasing Option’ or ‘Repurchase Agreement’. It is an agreement in which banks provide eligible securities such as Treasury Bills to the RBI while availing overnight loans. An agreement to repurchase them at a predetermined price will also be in place. Thus, the bank gets the cash and the central bank the security.
How does Repo Rate Work
Recent Repo Rate On the basis of an assessment of the current and evolving macroeconomic situation, the Monetary Policy Committee (MPC) at its meeting decided to: Increase the policy repo rate under the liquidity adjustment facility (LAF) by 50 basis points to 5.40 per cent with immediate effect. ● The current repo rate is 4.90% which is last updated on 4 may 2022. ● The current marginal standing facility is 4.65% which is last updated on 4 may 2022.
Eligibility Criteria for Home Loan There are following home loan eligibility criteria are given below:● Age ● Employment type ● Minimum annual income ● Collateral Security ● Margin Requirements ● Assets, liabilities, stability, and continuity of occupation ● Residency status (Resident Indian/ Non-Resident Indian
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