Home loan interest rate is at rock bottom levels after several years. The rate of interest on home loans are at multi-year low levels and borrowers may find the current rates to be lucrative enough to fund their home buying. What is also interesting is that some banks are offering home loans at rates which are even lower than the current yield on 10-year Government Securities (G-Secs). This means you as a borrower are able to secure funds at a lower cost compared to the government cost of borrowing money from the market.
“Indeed, some banks are currently offering home loans at around 6.5 per cent while 10-year government security has crossed 6.5 per cent and is likely going to rise in the future,” says Atul Monga, CEO and co founder, Basic home loan.
Of late, the benchmark yield has jumped to the highest in two years and is around 6.74 per cent while home loans being offered by some banks are available even at around 6.40 per cent.
Banks such as SBI, Punjab & Sind Bank, Union Bank of India, Punjab National Bank, Bank of Baroda, Bank of India and UCO Bank are among those banks offering interest on home loans which is around 6.5 per cent. Bank of Maharashtra’s home loan interest rate starts from 6.40 per cent.
But, before you take a decision looking at the current scenario, it’s better to take a close look two key things:
Who can avail lowest rates: The lowest rates are generally applicable for specific borrowers and not to all borrowers. Typically, lowest rates are offered to those borrowers who have high Credit Score. Also, these attractive rates of interest are mostly to salaried and on loans below a certain amount of say Rs 30-Rs 40 lakh.
How fast will EMI change: Presently, home loans from banks are compulsorily offered at a rate linked to an external benchmark. For most banks, it is the RBI’s repo rate and therefore, it is referred to as RLLR – repo rate linked lending rate. Any change in the repo rate will impact the RLLR and hence the home loan EMI.
“Most of the home loans are linked to repo rates and today the RLLR is at the lowest hence the interest rates have declined. But this level of repo rate is not sustainable, and hikes can be expected. So, even when G-sec remains constant, interest rates for the borrowers will fluctuate. Depending on inflation and other factors, rates will fluctuate. So, if the current rate is as low as 6.5%, it can change to 8% in the next few years.” adds Monga.
Effectively, in a floating home loan rate, the EMI changes in quick time as and when the repo rate changes.
So, comparing home loan interest rate to g-sec yield is merely an indicator to look at the current situation. Over time, as and when the repo rate changes, your RLLR home loan will also see a change in EMI. If you have already zeroed-in your home, as an end-user, it’s always the best time to buy by putting in the maximum as down payment and balance through home loan. Also, keep a prepayment plan handy to finish the loan as early as possible to save on interest cost.