Banks Lower Interest Rates Making Home Loans More Affordable
Jul 23, 2019 Real Estate News
From July 1st, the banks and financial institutes of the country have reduced their home loan lending rates. The decision has come after the Reserve Bank of India has reduced its repo rates. Repo rate is the rate at which the country’s banking regulator, RBI, lends money to the banks and financial institutes. The RBI has already reduced the repo rate to 75 basis points this year so far.
The banks that have reduced their MCLR rates are Punjab National Bank and Central Bank of India. Private Banks like ICICI has also reduced their MCLR by 10 basis points.
To explain MCLR in layman’s terms, it is the benchmarking lending rate at which the banks price their loans. Until last year, the banks based their home loan rates by the base points which were replaced by the benchmarking system last year on April 1st.
Current Interest rates:
Every bank has its interest rates and the rates differ from bank to bank. For public lender like State Bank of India, the MCLR is 8.40 percent. Central Bank of India is providing the loan at the MCLR rate of 8.5 percent whereas private bank ICICI has its MCLR at 8.65 percent. For Punjab National Bank, the MCLR stands at 8.40 percent.
To encourage the home buyers, the State Bank of India also launched home loans linked directly to the repo rates. The borrowers will now have an option to either choose the MCLR rate or repo rate. Choosing the repo rate link home loan will mean that the interest rate will change every time the RBI change their repo rates.
Impact on the borrowers:
The banks have been delaying in passing the benefits to the customers. After the bank regulator reduced their repo rates for the third time in the row, the RBI governor Shaktikanta Das said on 6th June that, “Transmission of the cumulative reduction of 50 bps in the policy repo rate in February and April 2019 was 21 bps to the weighted average lending rate (WALR) on fresh rupee loans.” The current repo rate provided by RBI stands at 5.75 percent.
Not just the new borrowers, but also the borrowers who have opted for a floating rate of interest can reap benefits from the same. The customer will have to approach the bank to notify for the same.
The reduction of this rate will lead to shorter loan tenure for the home loan borrowers. The banks generally adjust the home loan tenure and not the EMI when the repo rates are cut. So if your loan tenure was of 20 years, with the new reduction in the rates it can come down to 18 years.
The banks that have reduced their MCLR rates are Punjab National Bank and Central Bank of India. Private Banks like ICICI has also reduced their MCLR by 10 basis points.
To explain MCLR in layman’s terms, it is the benchmarking lending rate at which the banks price their loans. Until last year, the banks based their home loan rates by the base points which were replaced by the benchmarking system last year on April 1st.
Current Interest rates:
Every bank has its interest rates and the rates differ from bank to bank. For public lender like State Bank of India, the MCLR is 8.40 percent. Central Bank of India is providing the loan at the MCLR rate of 8.5 percent whereas private bank ICICI has its MCLR at 8.65 percent. For Punjab National Bank, the MCLR stands at 8.40 percent.
To encourage the home buyers, the State Bank of India also launched home loans linked directly to the repo rates. The borrowers will now have an option to either choose the MCLR rate or repo rate. Choosing the repo rate link home loan will mean that the interest rate will change every time the RBI change their repo rates.
Impact on the borrowers:
The banks have been delaying in passing the benefits to the customers. After the bank regulator reduced their repo rates for the third time in the row, the RBI governor Shaktikanta Das said on 6th June that, “Transmission of the cumulative reduction of 50 bps in the policy repo rate in February and April 2019 was 21 bps to the weighted average lending rate (WALR) on fresh rupee loans.” The current repo rate provided by RBI stands at 5.75 percent.
Not just the new borrowers, but also the borrowers who have opted for a floating rate of interest can reap benefits from the same. The customer will have to approach the bank to notify for the same.
The reduction of this rate will lead to shorter loan tenure for the home loan borrowers. The banks generally adjust the home loan tenure and not the EMI when the repo rates are cut. So if your loan tenure was of 20 years, with the new reduction in the rates it can come down to 18 years.
