Fix Your Lower Home Loan Interest Rates Before It Gets Too Late

Are you still planning to buy your dream home? Is buying a Home Loan still in your to-do-list? If yes, it’s time to hit the nail before it gets too late.

Yes!

Last few months have been a jolly period for Home Loan buyers as they saw a steep fall of the Interest Rate on Home Loan. But, if you are among those who are still waiting for the interest to go further down, there’s a bad news for you. Interest rates on your loans, including Home Loan will not go lower than the existing rates.

Although the Reserve Bank of India (RBI) has made no change in the country’s existing monetary policy and has paused the key interest rates on 7^th February, many banks have already increased their loan rates, after getting a hint from RBI’s unuttered warning.

Here’s how home buyers will be affected:

HDFC Bank, India’s second-largest private lender has raised its lending rates by 10 bps (basis points) on Wednesday even when RBI paused the key interest rates. It has also raised MCLR for 6 months, 1 year and 2 years to 8%, 8.20%, and 8.30% respectively.

Yes Bank, IndusInd, Kotak Mahindra and other private banks had also raised MCLR (marginal cost of funds based lending rate) by 5-10 bps each.

A basis point is equivalent to one-hundredth of percentage point whereas MCLR is the minimum interest rate set for the banks below which they cannot lend. MCLR is determined based on the cost of funds incurred by the banks.

Although Bank of Baroda has reduced its MCLR by 10-25 bps for loan tenures up to 1 year, its 1-year MCLR rate continues to be at 8.30% and most Home Loan interest rates are linked to it. Banks are also planning to raise their deposit rates to attract more funds, which is typically followed by a hike in lending rate too.

RBI has slashed down base rates by 200 bps since January 2015, against which the banks’ reduction has been much lesser.

Previously, the banking regulator has pulled up lenders on several occasions for their arbitrariness in regards to the calculation of lending rates and keeping them high. The regulatory body also flagged concerns relating to the weaker monetary transmission. This move has forced some of the banks to cut their base rates as well, however, they continue to linger considerably higher than the MCLR.

For State Bank of India, the 1-year MCLR stands at 7.95% whereas the base rate remains 8.65%, despite a cut of 30 bps made in January.

Many leading banks, has stopped the reduction in the loan interest rate cycle for now.

Banks have been asked by RBI to link their base rates with the MCLR w.e.f 1^st, April this year. The move will benefit existing Home Loan borrowers who have availed loans at the base rate (before April 2016) and will ensure speedy transmission of the policy rates decided by RBI. As per financial experts, about 30-40% of the loans are still linked with base rates.

Although 1-year MCLR is stable currently, the rates are going to be on the rise from now onwards.

Looking at the aftereffects of implementation of these policies, it is advised to fix your Low Home Loan Interest Rates ASAP, before the rates go high. If you have already availed a home loan, Avail Home Loan Balance Transfer Facility if it is financially beneficial (considering all the costs involved in making the switch).