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Home loan interest rate is continuously increasing from past few years, where inflation is blamed for this. The ratesrevision by the central bank has steadied after small ups and downs in past few months. During the time of inflation one sees an average increase in the price of all goods and services produced in the economy. Money loses its purchasing power during this period as each rupee buys few goods. This happens when the money supply grows faster than the output of products and services. In a perfect scenario, inflation is beneficial to the borrowers who are repaying the fixed amount every month without fail. In case somebody has taken a loan of Rs 25 lakh for the period of 8 years at 10 percent interest. And his EMI is around Rs 38,000. But in an Inflationary economy the EMI of Rs 38,000 will become less as the money value falls over a few years. When the individual moves to the seniority level his earning capacity will increase. The borrowers will feel the pinch when the rates move upwards with inflation. Inflation is difficult when the income level is stable but the prices are increasing. To control the inflation rate, the reserve bank of India is going to revise the key bank rates, the repo rates and the cash reserve ratio. The cash reserve ratio is the funds that commercial banks are supposed to hold as cash with the RBI. The CRR is called liquidity rate as it controls money supply in the economy. The CRR draws money from the banking system. This in turn increases the price. As money lending from the bank falls and the rates increases. A hike in the repo rates reduces liquidity and the cost of borrowing is increasing. The repo rate is the rate where RBI lends to banks. The reverse repo rate is that RBI takes from the bank. To control the inflation the key rates for lending has increased. Inflation is the main element to increase the home loan interest rates. One of the easy options to reduce the burden of EMI’S is making fully or partial prepayment. If you have any other investment with less return it is better to use the amount to repay the loan. For more articles on latest updates related to real estate industry please visit our official properties rating website.
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