As was widely expected, the Reserve Bank of India (RBI) in its Monetary Policy Committee bi-monthly meeting, kept the repo rate unchanged at 4 per cent, which will keep the borrowers continue paying almost the same rate of interest on their home loan EMIs.
For those looking to get home loans at a lower cost, the country’s largest lender, State Bank of India (SBI) had recently announced the SBI Monsoon Dhamaka Offer with a 100 per cent waiver on processing fees on home loans, the offer ends on 31.08.2021. This is a significant reduction from the existing processing fees of 0.40 per cent. SBI Home Loan interest rates start at 6.70 per cent.
For new takers of home loan, this could be the right time to buy their home. Currently there are almost 15 banks offering home loan interest rate of under 7 per cent, compared to around 8.4 per cent about 24 months back. The actual rate of interest will depend on home loan amount, your credit score, tenure etc.
Since, the repo rate has remained unchanged for a few months now, the RLLR also remains the same for most banks. Some of the banks that a new borrower may explore for the best home loan interest rate include SBI, LIC Housing Finance, ICICI Bank and HDFC, Kotak Mahindra bank etc.
“Keeping in mind the current scenario, a slight reduction in the key rates would have been widely celebrated as low interest rates have been a crucial factor in the revival of the demand in the real estate sector overall. While the consumer is enjoying low home loan rates currently, a cut would have further intensified demand,” says Lincoln Bennet Rodrigues, Founder and Chairman, Bennet & Bernard Group.
For those who already have a home loan taken before October 1, 2019, making a switch from Marginal Cost of Funds based Lending Rate (MCLR) to Repo Linked Lending Rate (RLLR) may not be as easy a decision as it looks. Any uptick in repo rate by RBI will immediately reflect in higher rates for them.
“As inflation levels rise, an increase in repo rates is currently being speculated. However, given the current state of the economy which just emerged from second wave and is on the verge of a third wave, expectations of a rate hike is lower. Even if a hike is implemented it should not be too high, given that revival of the economy remains a top priority for the Government. Therefore, it would be advantageous to keep home loans on the RLLR based lending rate, as even a 20 to 30 basis points difference in rates can result in significant savings for borrowers”, says Atul Monga, Co-founder & CEO, BASIC Home loan
Depending on the internal cost of funds, bank’s MCLR may see a fall. Any fall in MCLR will help those borrowers who have their loans linked to it and their re-set date is nearing.
Let us see how a 100 basis points or 1 per cent cut in home loan interest rate impacts your EMI and total interest cost.
Assuming a home loan of Rs 35 lakh for 15 years, the savings in EMI and interest ( On 100 basis points fall) will be:
- EMI Saved – Rs 1860 ( Annually Rs 22,320)
- Total interest saved – Rs 1.87 lakh
What to do
New borrowers may explore 2-3 lenders and ask for the effective home loan interest rate based on their loan amount, gender and period of the loan. But remember, whether it’s MCLR or RLLR home loan, keep a prepayment plan handy to repay the loan amount as early as possible. The earlier you repay the loan, the lower will be the interest burden for you.