Home loan rates down, but buyers should think before that switch
MUMBAI: This month, some large banks and one housing finance company (HFC) reduced interest rates by
15-30 basis points (bps) for home loans up to ₹30 lakh in an attempt to boost demand for affordable housing.
State Bank of India (SBI) cut the interest rate on home loans by 25 bps, to 8.35% from 8.60% for salaried individuals. One basis point is one hundredth of a percentage point.
ICICI Bank Ltd reduced interest rates on loans below ₹30 lakh by 30 bps, to 8.35% for salaried women and to 8.40% for other salaried individuals. And Housing Development Finance Corp. Ltd (HDFC) cut interest rates to 8.35% for women borrowers and 8.40% for other individuals. Axis Bank too, reduced home loan rates by 30 bps. The bank revised its rates for the salaried segment to 8.35% for loans up to ₹30 lakh. For selfemployed, the rate is 8.40%.
IS IT FOR YOU?
The definition of affordable housing differs but when it comes to home loans, banks are only considering the loan amount.
“The revised interest rate of 8.35% for women (and 8.40% for other individuals) is applicable for all home loans up to ₹30 lakh, including under the Pradhan Mantri Awas Yojana ( PMAY). There is no condition on the property value. But the maximum loan amount will be 80% to 90%, depending on the property value,” said Renu Sud Karnad, managing director, HDFC Ltd.
CAN IT BE USED FOR EXISTING LOANS?
If customers have an outstanding loan amount of ₹30 lakh on an earlier loan of ₹60 lakh, can they avail the new interest rate? “Yes, existing customers can lower the interest rate by paying a conversion fee,” said Karnad.
SBI, too, has a similar view but the caveat is that it is a limited period offer. “This interest rate is applicable irrespective of the property value and is a limited period offer, up to July 31,” said Vaijanath MG, chief general manager, SBI.
Remember, that this switch comes at a cost and the usual home loan charges will apply.
WHAT SHOULD YOU DO? If you are a new borrower and are looking to take a loan of up to ₹30 lakh, since major financial institutions are offering similar rates you should compare parameters such as processing fee and legal valuation fees. Do remember that some banks are offering these rates for a limited period.
If you are an existing borrower, you need to do the math to see if it makes sense to switch the loan to a new lender. But before taking that step, negotiate with your existing lender for a lower interest rate.
But it does make sense to switch. A customer with an outstanding loan amount of ₹30 lakh at 9.5% interest rate and a remaining tenure of 15 years will save ₹3.68 lakh when she moves to a 8.35% interest rate. Per lakh, the EMI (equated monthly instalment) comes down from
₹1,044 to ₹976.
Processing fee, administrative cost and other such charges could end up in the range of ₹10,000-12,000. Charges vary across banks.
The result is a substantial saving.
“Any amount of saving is good. As a borrower, you should be aware about the falling interest rates. After factoring in the conversion cost, if you still see some saving, you should definitely move to a lower interest rate loan,” said Surya Bhatia, a Delhi-based financial planner.