Home Loans get Expensive as Banks Hikes Rates
Aug 10, 2018 Home Loan
The stability of property rate has dwindled again. You will witness a spike in the cost of buying a property as major banks have announced an increase in the rate of interest for home loans. State Bank of India (SBI), Punjab National Bank (PNB), ICICI Bank and HDFC Bank are the first ones to announce the increase of rates even before Reserve Bank of India could announce its bi-monthly Monetary Policy Review (MPR) in June 2018.
RBI has decided to increase its repo rate by 25 basis point to 6.25 per cent, under liquidity adjust facility (LAF). Marginal standing facility and Bank Rate have been adjusted to 6.75 per cent and the reverse repo rate to 6.25 per cent. Before this announcement SBI, ICICI Bank and PNB announced an increase in the marginal cost of funds-based lending rate (MCLR) by up to 10 basis points; HDFC announced a rise of retail prime lending rate (RPLR) by up to 10 basis points and these rates are effective from 01 June 2018.
RBI has decided to increase its repo rate by 25 basis point to 6.25 per cent, under liquidity adjust facility (LAF). Marginal standing facility and Bank Rate have been adjusted to 6.75 per cent and the reverse repo rate to 6.25 per cent. Before this announcement SBI, ICICI Bank and PNB announced an increase in the marginal cost of funds-based lending rate (MCLR) by up to 10 basis points; HDFC announced a rise of retail prime lending rate (RPLR) by up to 10 basis points and these rates are effective from 01 June 2018.
Interest Rates Hike Calculation
Usually, home loans are fixed to one, two and/ or three years of MCLR. Hence, the increase in MCLR value will automatically increase the rate of interest for home loans.
PNB's rate hike: The increase in the rate is in MCLR for three years of tenure, which is up to 8.55 per cent.
SBI's rate hike: The 10 basis points increase is in the MCLR for all the tenures for up to three years. MCLR tenure has increased to 8.45 per cent.
ICICI's rate hike: The raise in the rate has been for MCLR for the one year tenures, which is up to 8.4 percent.
HDFC's rate hike: HDFC has increases RPLR by 10 basis points and the adjustable home loans are benchmarked.
Hence, it is a bad news for both borrowers and those who are planning to borrow home loans. You may opt for a fixed rate home loan, which is again not so cost-effective as this rate is usually priced 1 to 1.25 per cent higher than the floating ones. Moreover, the so-called fixed rate does not often remain fixed throughout the tenure.
Pertaining to this increase, banking experts predict that other banks would also follow the footsteps with the rise in the rates. Expect this spike to increase for months and years. However, this spike will not be in a hurry because liquidity in banks are still high and competition within banks is at peak.
PNB's rate hike: The increase in the rate is in MCLR for three years of tenure, which is up to 8.55 per cent.
SBI's rate hike: The 10 basis points increase is in the MCLR for all the tenures for up to three years. MCLR tenure has increased to 8.45 per cent.
ICICI's rate hike: The raise in the rate has been for MCLR for the one year tenures, which is up to 8.4 percent.
HDFC's rate hike: HDFC has increases RPLR by 10 basis points and the adjustable home loans are benchmarked.
Hence, it is a bad news for both borrowers and those who are planning to borrow home loans. You may opt for a fixed rate home loan, which is again not so cost-effective as this rate is usually priced 1 to 1.25 per cent higher than the floating ones. Moreover, the so-called fixed rate does not often remain fixed throughout the tenure.
Pertaining to this increase, banking experts predict that other banks would also follow the footsteps with the rise in the rates. Expect this spike to increase for months and years. However, this spike will not be in a hurry because liquidity in banks are still high and competition within banks is at peak.
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