Home loans at a concessional rate of 9.5% for 1st five years

Public sector banks (PSBs) are set to offer home loans of up to Rs20 lakh at a concessional rate of 9.5% for a period of five years as part of the government’s fiscal stimulus package announced on Sunday to spur spending and bolster sagging economic growth.

All new home loans advanced by state-owned banks until 30 June will come at the 9.5% rate, which will be reset five years later depending on the prevailing trend, according to two senior bankers involved in devising the package who didn’t want to be named.

Loan Rates Likely To Drop 25-75 bps

Given the recent cut in CRR, Repo Rate, SLR one could see that the cost of funds drop by up to 75 basis points, as leading state-run banks lower lending rates under pressure from the government keen to rev up the economy.

Many of the public sector banks — State Bank of India, Bank of Baroda, Indian Bank and Central Bank of India — confirmed on Tuesday that they were considering rate cuts following last week’s move by the Reserve Bank of India (RBI) to slash reserve ratios and cut short term rates and the government’s assurance of favourable policy measures.

Union finance minister P Chidambaram met with public sector banks’ chiefs on Tuesday to take stock of the financial position of banks at a quarterly review meeting. “We have had an extensive discussion and the Indian Banks Association, on behalf of the banks, has assured me that they will go through the matter and come up with some decisions on the price at which credit will be delivered to the different sectors,” Mr Chidambaram told reporters.

But in another development many of the private setcor banks like ICICI, Kotak and HDFC bank have indicated that they will not cut the Auto Loan rates just yet and they will adopt a wait and watch policy.

Banks reduce loan interest rates

State Bank of India has brought down its prime lending rate by 25 basis points. The country’s largest bank has brought down rates by the same level as HDFC earlier this month. Bank of India has also lowered rates on home loans and other personal loans.
The reduction in prime lending rate, known as SBI Advance Rate, will bring down interest cost for existing home loan borrowers as all variable rate loans are linked to SBIAR. Until the rate reduction SBI was charging, 2.75% below SBIAR for 5-year floating loans, 2.5% below SBIAR for 10-15 year floating rate loans and 2.25% below SBAR for 15-20 year loans. Loans above Rs 20 lakh were 25 basis points higher.

A few days ago Bank of India has reduced home and other personal loan rates without touching its prime lending rate. A BoI official of the bank said that for new borrowers the rate reduction will range from 25 basis points to 250 basis points depending on the nature of the loan and the tenure.

Last week, a host of banks including Canara Bank and Allahabad Bank announced rate reduction. Chennai-based Indian Overseas Bank said that the bank’s asset liability committee would meet on Friday to review its lending rates. Sources said that the bank was likely to announce a 25 basis point reduction in lending rates on the lines of the cut by SBI and HDFC.

The RBI in its monetary policy hinted that banks were doing very well because they had not passed on a reduction in their costs to borrowers. The finance minister has also been asking banks to ensure that they pass on cost reductions.

As a result of the reduction in the interest rates, the yields on G-Secs which are are an indicator of interest rate movement has decreased thus perking up the bond prices.

HDFC cuts the prime lending rate for home loans

HDFC has cut the prime lending rate for home loans by 25 bps and this move will benefit old borrowers who are on floating rates.

If you happen to be a burrower of HDFC, your rate goes down by a quarter percent on your due date, which happens every three months. After you have taken a loan, you are eligible for a change of rate and that is what HDFC has done. So it is the old borrowers who are going to be benefited.

Generally, the EMI is kept the same, and the tenure comes down. However, If someone really wants to reduce his or her EMI for whatever reason, he or she can do so, but generally HDFC changes the tenure of the loan.

HDFC extends festival offer for Home Loans

THE country’s largest housing finance company HDFC has extended its festival offer upto the end of this month. Under the offer, the company offers borrower rates that are 75-100 basis points lower than its rack rates. The extension of the festival offer is seen as reflection of the slight easing of liquidity in the money markets in January after an initial tightening in end-December. HDFC has been offering floating rate loans at rates as low as 10.25% under the festival offer scheme. These rates were introduced towards the end of last year and were earlier valid up to December 31.

The finance minister’s statement asking banks to cut rates by 50 basis points is also seen as favouring a lower interest rate regime. However the increase in deposit rates by State Bank of India has sent mixed signals since HDFC benchmarks its retail deposit rates against that of State Bank.

News paper reports also suggest that HDFC was also looking at developing a scoring system where individuals who are seen as better credit risks are given lower rates. This would depend on the individual’s track record. A mechanism for tracking an individual’s credit rating is being developed by the Credit Information Bureau of India where incidentally HDFC is one of the promoters along with SBI. Although liquidity continues to remain easy, the outlook for interest rates continues to remain highly uncertain.

This uncertainty is reflected in the differential between floating rate home loans and fixed rate home loans offered by HDFC which is as wide as 3.25%. Because of this huge differential a majority of borrowers continue to opt for floating rates.

'Interest'ing facts about home loan

Given the recent talks about reduction in interest rates by banks, reduction in inflation, weakening of global interest rates etc, i thought it is important to share with you some of the interesting facts about the rate of interest and the EMI that one pays over the tenure of the loan and the total amount that one ends up paying as a percentage of the total amount borrowed.

If the rate of interest rate for the home loan is taken as 10% pa then the EMI (Equated Monthly Installment) per month will be as given below

5 years - 2125. Total Amount repaid during the tenure of the loan - 129120
10 years - 1322. Total Amount repaid during the tenure of the loan - 158640
15 years - 1075. Total Amount repaid during the tenure of the loan - 193500
20 years - 966. Total Amount repaid during the tenure of the loan - 231840
25 years - 909. Total Amount repaid during the tenure of the loan - 272700

From the above, it is quite clear that as the number of years increase the EMI decreases but also on a very important note, the total EMI paid increases significantly. If one takes a 15 or 20 year period, one ends up paying almost twice the actual amount borrowed to the bank.

If the rate of interest rate is taken as 12% pa then the EMI per month will be as given below and if one takes a 15 or 20 year period, one ends up paying almost 2.5 times the actual amount borrowed to the bank.

5 years - 2225. Total Amount repaid during the tenure of the loan - 133500
10 years - 1435. Total Amount repaid during the tenure of the loan - 172200
15 years - 1201. Total Amount repaid during the tenure of the loan - 216180
20 years - 1102. Total Amount repaid during the tenure of the loan - 264480
25 years - 1054. Total Amount repaid during the tenure of the loan - 316200

Thus in future if you get a small bonus or some extra income, focus on paying back some of the loan as your tenure will reduce which will have a magical impact on the total tenure of the loan.

Banks cut home loan interest rates and Term deposits

THE country’s largest and second largest lenders — State Bank of India and ICICI Bank — have brought down interest rates on various loans including new housing loans. SBI has also lowered interest rates on some term deposits. The move comes a few days after the finance minister asked banks to bring down interest rates.

The proposed rates are under a festival offer applicable for all new loans sanctioned on or after Monday and are valid up to end-December for SBI.

As part of the festival offer, SBI has reduced interest rates on all new home loans, car loans, twowheeler loans and personal loans. Home loans are now cheaper by 0.50% to 1% depending on loan maturities and amount of loan. SBI also gives discount if the salary account is with the bank and further discount if a higher margin is available. For home loans up to Rs 20 lakh with a tenor of up to five years, SBI has cut rates from 10.75% to 10%, for loans with tenor between five and 15 years rates are cut from 11.25% to 10.25%. For tenors from 15 to 20 years the rate is reduced from 11.25% to 10.5%. For loans over Rs 20 lakh, rate cuts are 25 basis points lesser on comparable tenors.

ICICI cuts floating home loan rates

ICICI Bank has also cut interest rates marginally by 25-50 basis points on home, car and personal loans. This is a part of the festive offer by the bank. On the home loan front, the rate cut is only for floating loans. The bank has, however, not bought down its interest rates for deposits.

Rates of SBI’s new car and two-wheeler loans have been reduced by 1% depending on the amount and maturity of the loan. New car loans are now available at 11% to 12%.

Similarly, personal loans are now cheaper by 0.50% to 1%. In addition to the above, the bank is offering 50% concession in processing charges on all the personal segment loans.

Source : Economic Times of India

Will Home Loan rates come down ?

With the inflation coming down and the US fed reserve cutting the rates effectively for the banks in the US, there is a growing feeling that the RBI will also reduce the CRR or reduce the benchmark rates thereby paving the way for the bank to reduce the rates for the customers across various assets especially the home segment.

Some banks like HDFC, Canara bank have already cutting the borrowing rates by about 0.5 % pa. for the new loans and have mentined that they will decide about the existing customers after the credit policy.

However, the situation in India is slightly different now. Even though the inflation is low, there is a serious infusion of Foreign money into the Indian stock markets with frsh money pouring in every day. This has caused a huge demand for the Rupee and the ruppee is appreciating and has breached the Rs 40 mark to the US dollar. The RBI and the government have also said that the pace of appreciation is too fast for comfort and they know that exporters will get hit if the Ruppee continues to appreciate.

Thus while on one hand, we have a stable inflation and reducton in interest rates across the world led by the recent cut in the US, we have an appreciating Ruppee and a huge liquidity position with us. With a huge amount of liquidity in the markets, there seems to be a possibility of a CRR hike. This means that the home loan rates might actually increase or remain stable as a result of this. The cost of funds for the banks will go up, if there is a CRR hike.

Assuming a 50 bps CRR hike, the net outgo of banks, which they would have lent out, at around Rs 13,889 crore, would be now kept with the RBI.