Banks, including the country’s largest lender State Bank of India, have signalled reduction of their retail lending rates over the weekend by slashing their Marginal Cost of Funds based lending rate (MCLR). The reduction in MCLR has pulled lending rates to multi-year lows.
After Prime Minister Narendra Modi’s directive to banks on New Year’s address to act in “public interest” by focusing more on aiding the poor, lower middle class, middle class and senior citizens, several banks announced steep cuts in borrowing rates.
A home loan of Rs 75 lakh which was earlier available at 9.1%, will now be available at 8.6%. Apart from SBI, several other banks including Union Bank of India and the Punjab National Bank have also decide to cut down rates.
Here is a list of banks and their new home loan interest rate:
- SBI home loan interest rate: 8% from 8.9%
- IDBI Bank reduced its MCLR by 15 basis points to 9.15 per cent.
- Union Bank home loan interest rate: 8.65% from 9.3%
- IDBI Bank home loan interest rate: 9.15% from 9.3%
- SBT home loan interest rate: 9.2% from 9.45%
- IOB home loan interest rate: 9.15% from 9.5%
- PNB home loan interest rate: 8.45% from 9.15%
The steep cut has been facilitated by the surge in deposits during the demonetisation period, which led to a substantial fall in cost of funds for lenders. Banks have mobilised an estimated Rs 14.9 lakh crore of deposits following demonetisation during the last 50 days.
However, should the current round of reduction of lending rates, be the only criteria to prompt you for home buying ?
No, “Interest rates is one of the factors and probably the most important one to consider while taking a loan. However, there are other things that are important to consider such as spread and processing fees that you should look for while availing a loan. These factors can have a considerable effect on your outflows,” Adhil Shetty, CEO, Bankbazaar.com.
Spread is a percentage added to the loan on top of the minimum rate. This is usually in the range of 0.25-0.5 per cent However, there might be special schemes or offers where the spread of the loan is 0%. The spread is charged at the discretion of the bank and usually remains the same throughout the loan tenor unlike the interest, which is volatile and would change at frequent intervals to reflect the change in repo rates and market conditions. “The lower the spread, the better. Select the lender with the lowest spread as the market forces and regulatorypolicies would bring the rates at par eventually, however the spread would remain constant,” says Shetty.
The next important criteria are the processing fees and repayment terms. The terms and conditions pertaining to the repayment of loans depend on the type of loan and vary from lender to lender. “Potential borrowers must clarify the terms related to settlement/foreclosing the outstanding amount, transferring the balance to another lender’s account, prepaying a part or full amount of home loan, and other things, before finalizing a lender. There are also processing and legal fees associated with home loan approval and disbursal. Make sure you understand them well before applying,” Shetty advises.
But with the government’s announcement of rebate on lending rates along with the banks providing rate cut cushion to the public, affordable housing segment is the biggest gainer of all.