Banks are aggressively wooing small-size home loan customers with a
substantial cut in interest rates, says Prabhakar Sinha
Not only have prices of houses fallen in the last
one year, but interest rates on home loans have also been cut substantially in
the last nine months. In particularly, on smallsize home loan of less than Rs
30 lakh, interest rates have fallen from the range of 11% and 12% down to 8%
and 9%. The fall in interest rate from 12% to 8% has led to a fall in the EMI
by 24% on a 20-year loan.
The EMI on Rs 30 lakh loan for 20 year at 12% was
Rs 33,032, which now works out to Rs 25,093 after interest rates fell to 8% —
and for an interest rate of 9%, it translates in a fall in EMI by 18.25%, to Rs
26,991.
With onset of the festival season, banks like State
Bank of India (SBI) and Punjab National Bank (PNB) have not only cut interest rates but have also
waived the processing fees. Other lending institutions like HDFC Ltd and ICICI
Bank are also giving loan at a competitive rate. SBI has launched a home loan scheme,
in which the interest rate for the first year is charged at 8% and for the next
two years at 8.5%. And then links it with their benchmark rates.
In fact, the aggressive posture of SBI has forced
other banks to follow suit. After the SBI’s announcement, PNB cut its home loan rate to 8.5% for the first three
years and then will link it with the then prevailing market condition. HDFC Ltd
is also giving loan between Rs 30 lakh and Rs 50 lakh at 9% for the entire
duration of the loan repayment period. SBI has effected the steepest cut on
home loans between Rs 30 lakh and Rs 50 lakh. The interest rate will continue
to remain same for the first year at 8%, while the rate for second and third
year has been brought down to 8.5% from 9.5%, and beyond third year, the
floating rate on the loan has been cut by 1.25 percentage points. Earlier, the
rate was pegged at 1.5 percentage points below PLR, which has now been lowered to 2.75 percentage
points below the benchmark rate. So, the effective
home loan rate will become
lower. If the present condition remains the same
and the bank does not change the prime lending rate, the new rate will be 9% as
against 10.25% earlier.
In the case of home loan up to Rs 30 lakh, the
benefit for the first year will remain the same with interest rate at 8%. But
for the next two years, interest rate has been cut by 0.5 percentage points to
8.5%, from 9%. And after that till the loan is repaid, interest rate will be
pegged against the benchmark rate. But the discount against the benchmark rate
has been increased by 75 basis points. If the present condition continues and
the bank does not change the PLR, the
effective interest rate on the home loan after three years will be 9% as
against 9.75% earlier.
High-end customers will also find an advantage in SBI
Advantage Home Loan for loans above Rs 50 lakh. The SBI loan will come with
a fixed rate of 8% per annum (unchanged) for the first year, and 9% for second
and third year — down from 9.5% earlier. After that it will be linked with the PLR of the bank but with bigger discount of 1.75
percentage points as against 1.25 percentage points earlier. That means, even
after three years, the interest rate will be half a percentage point lower than
what it could be in the earlier scheme.
With lower repayment obligations during the initial
fixed rate periods of 3 years, the customer can buy a new house without
compromising on the lifestyle of the family, said a SBI official. After three
years, the income level of the borrower will also increase. So, even if the
interest rates go up marginally, by half a percentage points, it will not
affect his repayment capacity much.
