The back to back hike of 25 bps in each June and August will surely give a shook to interest rate policies. The Reserve Bank Of India left its policy rates unchanged, where policy repo rate stands at 6.5%. However, the rate in the current policy cycle will either remain the same or move upward. Which means that might be rated are certainly go up, so get ready to pay more interest rate some month down the line.
This change in policy stance by RBI from neutral to calibrate tightening explains; that moving forward RBI left with two options in rate cycle. One is either increase rates or keeping them steady.
As per October monetary policy review, SBI has increased its marginal cost of fund. This increase in marginal cost fund based lending rates by 5 bps across tenures. So existing borrower of an MCLR linked home loan from State Bank Of India will receive revised rates in next cycle. This revision will be based on whether the loan is linked with 6 months or 1 year. Each type of loan has reset clause. This specifies the period after which prevailing interest rate can be changed. SBI’s effective interest rate (MCLR plus spread) on Home Loan up to 30 lakh is 8.70 to 9% per annum, whereas other banks are about to revise their MCLR revision cycle.
So new borrowers must get ready to pay higher interest rates and existing borrowers wait to get the final float of rate that might or might not go higher.
Look out for tax benefits on repayment of interest and principal amount on home loan every year. As per IT deduction rule, the borrower is supposed to save up to 1.5 lakh under section 80C. And deduction up to 2 lakh for interest paid under section 24(b).
However, you are allowed to claim tax benefit under section 80C in many other ways like PPF, equity investments, insurances. Also, a deduction under section 24(b) is exclusively for interest paid on home loans.
According to a financial advisor, don’t keep home loan just for the tax benefit alone especially in case if you can foreclose it. Tax benefits are enough if you pay the interest rate. And this interest rate sum will be higher than what you have saved as a tax. However, a borrower should go for EMI for repayment followed by long-term equity funds. The combination of these two is so beneficial.
Or borrower can go for prepaying loan partially to get tax optimized. And for more take advice with an expert before making any final decision.