Home Loan EMIs: Why Borrowers Face Higher Rates
Key Highlights
Discover why some home loan borrowers, especially with NBFCs, still face higher EMIs despite falling interest rates due to slower transmission.
Despite a trend of falling interest rates, some home loan borrowers in India are not yet experiencing lower Equated Monthly Installments (EMIs). This situation arises primarily from the slower transmission of rate cuts, particularly impacting loans disbursed by Non-Banking Financial Companies (NBFCs).
For borrowers whose home loans are linked to external benchmarks, such as the Reserve Bank of India’s (RBI) repo rate, the benefits of falling rates are more immediate. These benchmark rates directly influence the loan’s interest rate, leading to a reduction in both the EMI amount and the total interest paid over the loan’s tenure.
However, a segment of borrowers, especially those with loans from NBFCs, may continue to face higher interest rates. This is because the transmission of rate cuts from the central bank to the lending rates of NBFCs is often a more gradual process. Consequently, these borrowers might not see a corresponding decrease in their EMIs or overall interest burden, even when market rates are declining.