During a shortage of funds or other statutory measures, commercial financial institutions of India often borrow money from the Reserve Bank of India, and the rate at which these financiers borrow money from the RBI by selling its securities is called the repo rate. As per regulations, the current repo rate of 2022 stands at 4%, which is an all-time low. Resultantly, the interest rate on various credit instruments is also affordable making it easy to get a loan.
In comparison, a reverse repo rate is a rate at which RBI borrows money from commercial financial institutions when there is excess liquidity in the market. This helps to absorb liquidity, thus ceasing the borrowing power of investors. As per current regulations of 2022, the reverse repo rate stands at 3.35%, and this is the 10th time RBI has kept these lending rates unaltered.
Difference between repo rate and reverse rate
A few key differences between the repo rate and reverse repo rate are –
- The repo rate is the rate at which RBI lends money, whereas the reverse is the rate at which RBI borrows money from financial institutions.
- The reverse repo rate is always lower than the repo rate.
- Repo rate involves the sale of securities from a commercial financial institution, whereas reverse repo rate only includes transferring money from a financial institution to the RBI.
- Lastly, the repo rate is used to mitigate any deficiency of funds and control inflation, and the reverse repo rate is used to manage cash flow in an economy.
Effect of current repo rate on home loan
As mentioned earlier, the repo rate for the current financial year stands at 4%. This makes any loan more affordable as financial institutions disburse them at an affordable rate. This, in turn, lowers EMI and allows citizens to avail themselves of a home loan to purchase a property with a considerably lower repayment burden.
However, to get a better idea of repayment, one needs to learn loan EMIs and total interest payment. Now, calculating it manually for a home loan is a challenging task. However, this can be quickly done with the help of a home loan calculator. Although it is a simple and easy tool, a few steps to use it are provided below.
Steps to use a home loan EMI calculator
The steps to use a housing loan EMI calculator are –
1: Navigate to the official website of your preferred lender
2: Enter the loan amount
3: Then, enter the desired tenor
4: Finally, enter the current home loan interest rate to get the EMI amount instantly
Apart from providing the EMI amount, other benefits of using a home loan EMI calculator are given below.
Benefits of using a home loan EMI calculator
The benefits of using an EMI calculator are –
- Provides amortisation schedule
A home loan EMI calculator provides an amortisation schedule, which significantly eases financial planning. This table contains a detailed breakup of loan repayment and includes information on how the payment will proceed through a tenor.
- Helps to decide repayment tenor
As tenor is one of the most significant factors for a home loan, selecting an ideal one is crucial. This will affect the EMI amount and decide the overall affordability of this financial product. Thus, most lenders advise using an EMI calculator where prospective borrowers can alter the tenor according to their requirements and settle for a desired EMI amount.
- Accurate and prompt results
Talking about the advantages of this financial tool, it offers fast and accurate results. Resultantly, individuals can plan their finances, avoid facing any issues due to lack of proper information.
- Free to use
This calculator is also free to use and provides accurate results every time. So, candidates can use it numerous times to get a clear idea about EMIs beforehand.
Besides the assistance in financial planning, leading HFCs extend pre-approved offers to expedite the application process of a home loan in India. These offers are also available on a wide variety of secured and unsecured financial products. Applicants can now check their pre-approved offers by submitting their essential contact information.
Hence, before availing of a home loan, individuals must have a clear idea about the current repo rate and reverse repo rate to enhance their financial knowledge to settle for the right loan deal.