High home loan rates: Still wise to avoid prepayment?

Home loan borrowers often grapple with a common dilemma - whether to utilise their accumulated savings to reduce the burden of their home loan or invest it in equities. This becomes particularly pressing in an environment marked by escalating interest rates. Impact of repo rate on home loan interest rates The home loan interest rates have risen significantly over the years. In the case of HDFC Bank, it has risen from 7.95 per cent to about 9.40 per cent in the last three years. It is important to note that interest rates on home loans are influenced by repo rates. [Repo rate is the interest rate at which the Reserve Bank of India (RBI) lends money to banks]. Banks in turn add a mark-up over the repo rate to calculate the interest rates on home loans. For instance, HDFC Bank currently adds a mark-up of about 2.25 to 2.90 per cent to the prevailing repo rate of 6.5 per cent, resulting in an annual interest rate of 8.75 to 9.40 per cent. The repo rates have been on a rise since the past one year. A

This article was originally published on December 04, 2023.