IDBI Bank has already increased its one-year MCLR rate to 8,65 percent, making its loans more expensive for customers. The bank has also increased its two-year and three-year MCLR rate to 8.7 percent and 8.8 percent, respectively
By ZeeBiz WebTeam | Updated: Mon, May 14, 2018 06:12 pm | ZeeBiz WebDesk
If you are thinking of taking a home loan then you must do it as early as possible, as banks are likely to increase their interest rates in near future. IDBI Bank has already increased its one-year MCLR rate to 8,65 percent, making its loans more expensive for customers. The bank has also increased its two-year and three-year MCLR rate to 8.7 percent and 8.8 percent, respectively. This rate has been made effective from May 12. The bank has increased MCLR in the range between 0.5 bps and 0.10 bps.
This is the base rate at which banks provide loans to its customers. If banks get cheaper loans then they also lend at cheaper rates to their customers and vis-a-vis. An increase in the MCLR means, your loans will come at a higher rate, and you will have to shell out more for auto loans, home loans, personal loans or any other loans.
The country’s largest lender State Bank of India (SBI) recently increased its home loan rate for up to Rs 30 lakh from 8.35 percent to 8.65 percent. Allahabad Bank is also providing the home loan amount up to 30 lakh at 8.35 percent.
Other banks including Axis Bank and Bank of India are giving home loans up to Rs 30 lakhs at 8.4 percent, according to Bank Bazaar. For home loans between Rs 30 lakh and 75 lakh, Allahabad Bank, Dena Bank and SBI are charging 8.35 percent. These banks are also charging the same rate for loans over Rs 75 lakhs, according to the financial services company website.
ICICI Bank, however, is charging between 8.75 and 8.95 per cent for loans over Rs 75 lakh, while HDFC Bank is providing loans at 8.6 percent for the amount exceeding Rs 75 lakh. As the banks are increasing their loan rates, this is the right time to go for home loan.
Bank of India will offer preferential pricing rates to borrowers with good credit scores for home loans of Rs 30 lakh and above, the state-run lender said.
By: PTI | New Delhi | Published: May 7, 2018 7:35 PM | Financial Express
Bank of India will offer preferential pricing rates to borrowers with good credit scores for home loans of Rs 30 lakh and above, the state-run lender said. Customers with CIBIL score of 760 and above will be offered loan at the minimum home loan interest rate or the marginal cost of lending rate (MCLR) for an year, the bank said in a statement. MCLR is the minimum interest rate of a bank below which it cannot lend. Those with a score of 759 and less, the rate of interest for loans of Rs 30 lakh and above will come at MCLR plus 0.10 basis points for a year.
One basis points is 100th of a percentage point. Bank of India said borrowers availing home loans of over Rs 30 lakh will be benefited from the reduced rate of interest. A consumer’s CIBIL score is a three-digit numeric summary of the credit information report (CIR) — summarising the past credit behaviour and repayment history — and ranges from 300 to 900.
The higher the score, the better are the chances of loan approval. Most banks check a consumer’s CIBIL score and report before approving a loan. “Consumers with a good credit discipline should be rewarded, as it helps propagate the importance and need to maintain a good financial history. Our preferential pricing model aims to reward high-scoring home-loan aspirants with competitive ROI, thereby helping them making their dream home a reality,” Bank of India said in a statement.
Credit information company TransUnion CIBIL’s Head of Direct to Consumers Interactive Hrushikesh Mehta said: “Bank of India’s CIBIL score-based incentive helps further highlight the need to monitor and build a positive credit profile through good credit habits.”
Currently, banks can decide their own benchmark lending rate, the MCLR. What if your loan was linked to a benchmark set by a third-party? Will you get a better deal?
Vivina Vishwanathan | Last Published: Tue, Mar 13 2018. 08 33 AM IST | LiveMint
India has floating home loans that become expensive as soon as the interest rates go up, but don’t float down when the rates fall. This happens because the banking regulator allows banks to peg their home loan rates to a benchmark that the banks themselves control—allowing them to benefit when they choose to, at the cost of you, the retail borrower. But it looks as if competition is finally arriving in this segment with a new home loan product from Citibank India, which uses a third-party benchmark. Here, we examine if such a thing is good for you or not. But first, some background.
Several times, the Reserve Bank of India (RBI) in its monetary policy review has flagged the issue of rate cut benefits not being passed on to retail customers. It has tried thrice to rationalize the benchmark lending rate linked to home loans, in a way that there is transparency and the benefits are passed on to consumers.
In the last 7 years, we have also seen home loans move through three benchmark rates—from benchmark prime lending rate (BPLR) to base rate in 2010 and then to marginal cost of funds based lending rate(MCLR) in 2016. However, none of these attempts seem to have worked and the desired goal of transparency in loan rates has still not been delivered.
Last year, during a monetary policy announcement, RBI governor Urjit Patel indicated that MCLR could be reviewed as the rate transmission to customers continued to be slow. While the banking regulator waffles on this, Citibank has come out with a home loan product that is linked to 3-month treasury bills (T-Bills).
Is it allowed to do this? “RBI permits banks to link their variable rate home loans to MCLR, provide fixed-rate loans, semi-fixed-rate loans or (even) link their loans to an external benchmark,” said Rohit Ranjan, head of secured lending, Citibank India. This is not the first time a bank has linked its home loan product to an external benchmark. ING Vyasa Bank Ltd, in 2005, had a home loan product that was linked to Mumbai Inter-Bank Offer Rate (Mibor) (you can read more about it here). Let’s understand the home loan products linked to T-Bills and see if you should opt for them.
Citi’s new home loan product is linked to the 3-month Government of India T-Bill benchmark. It is an external reference rate. Citi has decided to pick this data from the Financial Benchmarks India Pvt. Ltd (FBIL), which is a company that aims to develop and administer benchmarks relating to money market, government securities and foreign exchange in India.
How is the data for this benchmark arrived at? According to FBIL, it is based on T-Bills traded in the market. The benchmark rate is announced everyday at 5.30pm, except on holidays.
It is calculated from the data of secondary market trades executed and reported up to 5pm on the Negotiated Dealing System – Order Matching Platform (NDS-OM)—which is an electronic system for trading government securities in the secondary market. All trades of Rs5 crore or more, and having had a minimum of three trades in each tenure are considered. The benchmark T-Bill data is then published for seven different tenures: 14 days, 1 month, 2 months, 3 months, 6 months, 9 months and 12 months.
So that there is consistency, the bank has decided to pick the rate published on 12th day of each month. “Our endeavour is to provide as much stability as possible on rates to our customers. We believe a date towards the middle of the month best suits this objective,” said Ranjan. Usually, the RBI too comes out with its bi-monthly monetary policy in the first week of the month.
As this home loan product will be linked to 3-month T-Bill data, its reset clause will also be set for 3 months. This means, every 3 months your home loan interest would change based on movements in the external benchmark rate.
Is a 3-month T-Bill benchmark appropriate for 20-30 year loans? In a developed market such as the US, mortgages are linked to longer duration benchmark rates. “Linking long-term loans to longer-duration benchmark rates is more appropriate to the extend that it is based on duration. But at the same time in the US, for example, mortgages tend to be fixed. Then it makes sense to link to longer term loan. In case of Citi’s home loan product, the reset is more frequent and linking to a long-term rate may not be appropriate. It is just a strategy,” said R. Sivakumar, head, fixed income, Axis Mutual Fund.
The home loan also comes with a spread. In this case, it is around 200 basis points, plus T-Bill. The 200 basis points can vary depending on your credit profile. “As of today, home loan rate linked to t-bills will be around 8.5%….If your credit profile is good, then the spread could be lower,” said Ranjan. Remember that the spread that you agree to while signing a loan agreement will not be changed till the end of loan tenure.
How T-Bill is different
The RBI has said many times that there is no transparency in the way floating interest rate on home loans is calculated, and that there is need for a benchmark rate that is market linked so that any change in policy rates can be passed on to the consumers. Usually, banks keep the rates high even in a falling interest rate regime and you don’t see an immediate impact or cut in policy rates. To understand if home loans linked to T-Bills will bring in transparency, we compared T-Bills with MCLR and base rate. If you look at both comparisons, the drop in interest rates linked to MCLR as well as base rate come with a lag. If the home loan rates are linked to T-Bills, the reflection on falling interest rate is likely to be immediate on your home loan. The movement in T-Bill yields is a result of two parameters—repo rate and liquidity. Hence, if it is a falling interest rate regime, the fall will reflect faster in your loan rates.
Currently, when your home loan is linked to MCLR, the impact on your home loan rate is also a result of the banks’ cost of funds and other parameters associated with the bank that you take the loan from.
What should you do?
The concept of linking home loans to an external benchmark rate (instead of an internal one) is a good idea, as it makes the process transparent. Typically, banks have some leeway in controlling their rates. An external rate should obviate such a possibility.
However, is it possible for banks to manipulate the external benchmark too? “It is very difficult, since the cut off rate is decided by RBI. The central bank has the ability to manipulate it but a market participant can’t since it is a big and liquid market,” said Sivakumar.
As of now, the interest rate on home loans that is linked to T-Bills and MCLR are similar, due to the spreads attached to each one of them. A Citi home loan linked to MCLR has a spread of 40 basis points while the one that is linked to the T-Bills would have a spread of 200 basis points. Experts say that interest rates linked to an external benchmark will bring transparency and hence will help you to benefit more from falling interest rates.
“The rate will fall as well as rise faster. In T-Bills you will see a decrease before the MCLR decreases. There will be periods where the rates will lead or lag each other. But over the life cycle of the mortgage, say 20 to 30 years, the difference should not be huge, assuming the spread of 200 basis points,” said Sivakumar.
Currently, there have been signals of a higher interest rate regime kicking in. Hence, you may not benefit from T-Bill rates immediately. “The experience with base rate and MCLR has been that the rates tend to fall much more slowly when policy rates are falling. The moment you have an external benchmark, and there is no bank controlling it, the loan will be far more transparent and you are better off having that— especially when rates are falling,” said Vishal Dhawan, a Mumbai-based financial planner.
But what about the 200 basis point spread? “The spread is a function of what you end up believing is the cost of running a business. Ultimately, the bank will also be raising resources, which is not necessarily linked to 3-month T-Bill rate. It will be unfair to believe that the cost of fund for the bank is only the 3-month T-Bill rate and the spread is too much. The value will become far more evident when the rate cycle turns again and rates go down—right now it may not make a big difference,” added Dhawan.
As a borrower, however, you now have an option to pick a home loan based on an external benchmark. If it doesn’t work for you, you always have the option to switch to an MCLR-linked home loan.
Don’t see property prices going up for now: Renu Sud Karnad, Managing Director, HDFC
ANIL URS | Published on March 14, 2018 | The Hindu Business Line
BENGALURU, MARCH 14
Renu Sud Karnad, Managing Director, HDFC, in an interview with BusinessLine, explains how the realty and home-loan sectors are shaping up as the new regulatory regime sets in. Excerpts:
How is the property market doing pan-India?
Apart from New Delhi and Chennai, where we see slow offtake, the market is good in other major cities. By good I mean, we are doing good business.
How do you see property prices moving?
As I see it now, I don’t see any increase in property rates happening.
What about interest rates, especially in the wake of rising bond rates?
Yes. Interest rates are rising a little bit. But let me put it this way. I don’t think the rates are going to come down. I think next year we will see a quarter to 1 per cent increase in rates.
Is this rise in rates low, or how do we understand it?
A quarter to half a per cent is nothing when compared to the high interest rate days, when home loans were going at 13-14 per cent. Now they are at 8.3-8.4 per cent. So they may go up to 8.9-9 per cent.
How is HDFC’s home loan growth?
At 23 per cent, our home loan growth is excellent. We have seen good growth coming from Mumbai, Bengaluru, and Pune. In the National Capital Region (NCR) it is a little slow. Otherwise, home loan growth normally is about 15-18 per cent.
Are any banks on your radar for acquisitions?
We are always on the look out whenever an opportunity arises.
How far are you in picking up CanFin Homes?
Actually, you should ask them, because five to six people are talking to them. I don’t know what pressure of time they have and don’t know when they need to announce it. Yes, we are also talking to them.
Have you firmed up your business plan for the next fiscal (2018-19)?
We are in the process. But I can tell you we are looking at 15-18 per cent growth.
How is the borrowing by property developers?
They, I think, are now looking at new avenues. PE funds are giving them money. Banks have also started to explore. Once the sector gets used to new regulatory framework, we could see good amount of lending.
Definitely the last one year had been challenging from them. But I think in the next six months, things should settle down.
PTI | March 5, 2018 | India Today
Mumbai, Mar 5 (PTI) Even as rivals continue to be reluctant about adopting external benchmarks for setting lending rates, American lender Citi today launched the countrys first market benchmark rate-linked lending product.
The bank has introduced a home loan product that will be linked to the rate of treasury bills, which is used by government for its short-term borrowings.
The lender, which already has similar external benchmark-linked products in other markets like the US and Singapore, said it does not see any impact on net interest margin (NIM), a key determinant of profitability, because of the launch of the product where a borrowers rates will be reviewed every three months.
Frustrated at poor transmission of its policy moves into lending rates for borrowers, the Reserve Bank had last October mooted the idea of moving to a market-linked benchmark and suggested three such instruments, including the T-bills rate, the rate for certificate of deposits and its own repo rate to determine the interest rate.
Bankers, led by their lobby grouping Indian Banks Association, had opposed such a move, claiming that the existing marginal cost of funding based lending rates is working well and also pointed out that deposits are not linked to any market benchmark.
Citis country business manager for global consumer banking Shinjini Kumar, said a shift to a market benchmark like the T-bill is transparent, simple and will also help with better transmission.
Loans will be sold at a fixed spread above the T-bill rate which will be maintained throughout the loan tenure, she said, adding there will be quarterly readjustments for the borrower.
There will be a range of spread above the T-bill rate which the bank will follow, its head of secured lending Rohit Ranjan said, adding the average spread will be 2 percentage points. Existing customers will also be able to move to the new product without any refinancing costs, he added.
The banks country treasurer Badrinivas NC sought to downplay concerns surrounding customers being exposed to T- bill rate volatilities, which may happen due to external events like the taper tantrum in 2013 and hinted that the rates also reflect the policy decisions at a particular point of time which get captured through the quarterly resets.
He said the bank has a diversified liability profile, including a high 60 per cent composition on the low-cost current and savings account deposits and also other retail term deposits, which will make it possible for it to offer such a product.
The bank feels the RBI will be on a long pause and may go for a hike in rates only if there is a surge in inflation, he said.
In a few cases, especially concerning top corporates, the bank has been benchmarking rates against market benchmarks but those were deals done on a one-on-one basis, and this is the first time that any lender is going to the market with such an offering, Kumar said.
The bank had a gross home loan book of Rs 9,000 crore, while the overall India book stood at Rs 57,000 crore as of December 2017. Even as rivals struggle with dud assets, its NPAs on the mortgage lending is a healthy 0.05 per cent, the bank said.
Commenting on the recent changes in priority sector lending (PSL) requirements for foreign banks, Kumar said Citi is already compliant on PSL requirements, including the sub- categories and in some cases it uses priority sector lending certificates.
The bank will be resorting to use of digital technologies and tying up with partners to comply with the new requirements, she said. PTI AA BEN BEN SDM
Sidhartha | Updated: Mar 1, 2018, 17:41 IST | Time of India
NEW DELHI: Several lenders, including State Bank of India, ICICI Bank and Punjab National Bank on Thursday announced an increase in lending rates, a move that may make your home loans a little expensive.
The hikes come amid tightening liquidity or cash supply in the banking system, accentuated by the year-end rush that prompted SBI, the country’s largest lender, to raise deposit rates by up to 50 basis points for retail borrowers.
On Thursday, SBI increased its marginal cost of lending rate, which is linked to the interest rate on funds raised by a bank, by 20 basis points (8.15% from 7.95%).
Like SBI, starting March 1, ICICI Bank and PNB increased their MCLR but by a slightly lower magnitude of 15 basis points. Some lenders such as HDFC Bank will review rates next week.
Typically, while extending a home loan, banks keep a spread over the MCLR which results in a higher interest rate on these loans. PNB said that its home loans will cost 8.6% for most borrowers, while women will get it at 8.55%.
SBI has a spread of 40 basis points over the MCLR for most borrowers and 35 basis points for women borrowers (100 basis points equal a percentage point).
While the government has been seeking a lower interest rate and has repeatedly prodded the Reserve Bank of India to pare policy rates, the central bank has resisted a softer interest rate regime, arguing that there is a risk of higher inflation given the recent rise in global crude petroleum prices as well as the impact of domestic measures such as higher allowances for government employees following implementation of the seventh pay commission recommendations. Besides, it has pointed to higher food prices to refrain from cutting policy rates.
With economic growth picking up, RBI may not move that path now and last month the government’s chief economic adviser Arvind Subramanian had acknowledged that the scope to lower rates may have narrowed.
After a few hikes in marginal cost based funding rate (MCLR) by some banks in past two months, banks first raised the rates on bulk deposits.
Nikhil Walavalkar | Mar 01, 2018 01:13 PM IST | Source: Moneycontrol.com
The largest public sector bank in India – State Bank of India – has decided to increase the interest rate payable on retail deposits, followed by an increase in MCLR (marginal cost of funds-based lending rate) – the rate charged on loans – by up to 20 basis points. As the largest lender revises its interest rates, should you be worried with your financial plan?
Before getting into corrective measures and means to exploit the rate action, you should spend a minute understanding why rates have gone up.
“Towards the end of the financial year the liquidity in the market has gone down. The banks are keen to raise money. The rates are hiked as a lagged response to the rising bond yields,” said Mahendra Kumar Jajoo, head – fixed income, Mirae Asset Management.
For the uninitiated, the benchmark 10-year bond yield has moved up to 7.78 percent from a low of of 6.18 percent on December 7, 2016.
Banks typically take time to raise their fixed deposit rates. After a few hikes in MCLR by some banks in past two months, banks first raised the rates on bulk deposits. Now interest rates on retail fixed deposits are being hiked. This is a sign of relief for most fixed deposit investors who were forced to consider investing in the volatile stock markets through mutual funds.
Though the interest rate hike on fixed deposits is good news for conservative investors, one should not expect fireworks in the form of aggressive rate hikes in near future.
“As of now the liquidity tightening is the cause behind the fixed deposit rate hikes. RBI has maintained its neutral stance on the monetary issues. This may change to hawkish over next six months,” said Joydeep Sen, founder of wiseinvestor.in, a Mumbai-based wealth management firm.
Though the interest rates are set to go up and others are expected to follow SBI, the process of rate hikes will be gradual. “Bank fixed deposit investors may see higher rates over next six to twelve months. You can consider opting for six months to one year fixed deposits and rolling it over at higher rates when they mature,” Sen advised.
Rising interest rates, however, ring alarm bells for both bond fund investors and borrowers. The increase in yield suppresses the prices of bonds and thereby hurts investors in bond funds as net asset values of the bond funds go down. Recent spike in bond yields have taken a heavy toll on bond funds. Long term gilt funds lost 2.1 percent over past three months, on an average.
The prevalent bond yields are a result of the market discounting RBI’s hawkish stance one year down the line, according to experts. Although opinions are divided on the extent of a further surge in yields, there seems to be a consensus when it comes to volatility in the bond market.
If you are not comfortable with the volatility, you should stay away from long-term bond funds and income funds that invest in longer-term paper.
“Short term bond funds are good investment option at this juncture as they invest in bonds maturing in two to three years, where the yields are attractive,” said Jajoo. If you are comfortable with some amount of volatility and expect a sideways move in yields, you may consider investing in income funds and dynamic bond funds.
While fixed income investors see a mixed bag in the rising interest rate regime, borrowers, especially those on floating rate liabilities, are expected to see tough times ahead. The banking sector is undergoing a situation of extreme pressure on margins due to an increase in non-performing assets like never before.
The rise in yields and fixed deposit rates will ensure that banks will be forced to raise their MCLR. This will result in an increase in the floating rate for home loan borrowers. For example, if you have a Rs 50 lakh home loan for 15 years and the rate is hiked to 8.45 percent from 8.25 percent, then the EMI changes to Rs 49,090 from Rs 48,507, an increase of Rs 583. You may ascertain the possible impact on you using EMI calculator.
“Other banks will definitely follow the MCLR hike action of SBI. The rates on home loans may be hiked by the end of this month or in early April,” said Sukanya Kumar, founder of RetailLending.com.
Banks may postpone their rate hikes to attract home loan volumes and close the financial year with good numbers. But home loan borrowers should be prepared to pay higher EMIs in the near future.
Rates will be revised depending on the MCLR time frame. For example, if your home loan is linked to 6-month MCLR, you can expect rates to change after six months from the last reset. The 6-month MCLR prevalent at that time will be applicable to your home loan at the time of reset.
If interest rates continue their journey northward, cash flows do change for you. Account for them well in advance to ensure that you do not get caught off guard.
A prudent borrower will plan it wisely to make his home loan EMIs affordable.
Ravi Kumar Diwaker | Magicbricks | February 23, 2018, 18:21 IST
Home loan is a long-term financial commitment and it is important to ensure your EMIs are within your budget and do not impact your monthly income. It is seen as a financial burden which has to be planned very carefully.
A prudent borrower will plan it wisely to make his home loan EMIs affordable. Often, home buyers choose a long-term home loan in order to pay a lower EMI but end up paying more interest.
These easy steps can help you reduce the total interest on your home loan.
Buyers should choose a short-term for their home loans as it ensures a reduced long-term financial commitment. A 15-year loan is better than a 20-year home loan as it results in a lower interest rate on your total amount. Your monthly EMI may be higher but interest will be less. A short-term tenure means the principal amount of your loan is paid faster leads to lower interest rate because interest is calculated on the outstanding principal amount.
Reduce interest rate
You must always choose the lowest interest rate home loan and go ahead with refinancing of your loan if your interest rate is coming down.
Pay the principal
Make sure that you are paying the principal as quickly as possible as the lesser principal amount means lesser interest to be paid to the bank. If you have extra cash in hand then try to give it to the bank and get your principal amount reduced. Some buyers do that so that the EMI interest can come down.
More than one EMI
You can also pay more than one EMI every year. This will reduce your loan tenure and interest cost as well. It is very important to calculate your finances based on your income. It will make you pay more but ultimately you will be benefited.
With rise in your salary, you can choose to pay a higher amount of EMI. It is good to reduce your home loan interest burden. You can calculate the interest rate as per your home loan amount, tenure and interest to find out how much amount you are paying less by this step.
Compare interest rates
Banks will not reduce the interest rate to the existing home loan borrowers till you go there and ask them to do it and fill a form for the same. If your existing bank does not reduce the interest rate then find out which bank is offering you lower interest rate and get your loan refinanced. You must also find out the charges for switching the loan before going ahead with refinancing.
These are some tips for home loan borrowers to help them reduce the burden of home loans. The government is already giving the CLSS benefit to buyers purchasing affordable homes. You can also opt for that so you pay less amount of EMI. A short-term loan may reduce your interest payout but it will increase your EMI and may impact your monthly income. You need to choose the EMI amount that is affordable to your pocket.
PTI | Published Date: Jan 02, 2018 07:52 am | FirstPost.com
Mumbai: In a major boost to homebuyers, the country’s largest lender State Bank of India has extended the processing fee waiver till March-end and also reduced the base rate by a sharp 30 basis points to 8.65 percent.
The reduction in base rate, effective from Monday, is going to bring relief for nearly 80 lakh customers of the bank whose loans are still linked to the base rate and not the marginal cost of funds-based lending rates (MCLR).
Flushed with excess liquidity, SBI had announced processing fee waiver for auto and home loans late August. In fact, since last fiscal, and especially after the November 2016 note-ban, all the banks have been saddled with excess liquidity amidst continuing degrowth in industrial credit.
For the first time in over two years, credit uptake by corporates entered the positive terrain but with a paltry 1 percent growth in November this year. “We’ve decided to extend the ongoing waiver on home loan processing fees till March 31, 2018 for new customers and others looking to switch their existing loans to us,” SBI said in a statement on Monday.
Managing director for retail and digital banking P K Gupta said that with stability returning to the realty space after the implementation of the Real Estate Act (Rera), he sees lots of demand for home loans going ahead. “With most states having the realty regulator Rera now, stability has returned to the market in terms of project approvals. The teething troubles of the initial Rera months are behind the market. So, we foresee lots of demand for home loans. So, we think this is the right time to continue with that waiver to enable people for buy homes,” Gupta said in a concall.
The bank revised down the base rate to 8.65 percent for existing customers from 8.95 percent, while the BPLR (benchmark prime lending rate) is down from 13.70 percent to 13.40 percent.
The bank, however, did not change the marginal cost of funds-based lending rate (MCLR). The one-year MCLR of the bank stands at 7.95 percent.
“We had done the rate review in the last week of December, and based on whatever deposits rates we had, our base rate was brought down by 30 basis points to 8.65 percent now,” Gupta said.
The move is going to give nearly 80 lakh customers of SBI who were on the old lending rate regimes and have not moved to MCLR. Banks review MCLR on a monthly basis, while the base rate revision happens once a quarter.
“The MCLR was reduced earlier also as the gap between MCLR and base rate had become quite wide. This reduction will help in reducing that gap,” he said.
Due to weak transmission of policy rate by banks under the base rate system, the Reserve Bank had introduced the MCLR from 1 April, 2016.
With the banks not fully passing on the rate cuts that the central bank has done in the past two years, the regulator is not happy even with the base rate regime and has mooted an external benchmark to better reflect market realities and speedier transmission.
Gupta said the current revision of base rate will ensure transmission of the policy rate cuts in the recent past.
From the past few quarters, the real estate markets in India have been going through a phase of massive change.
Kanika Gupta Shori | Retrived on 1st Dec 2017 | Moneycontrol.com
How do you time your entry in any investment channel — whether it is equities or real estate? Is it the juncture when the markets are booming and everyone is joining the fray? Does that make for a sound investment decision? Probably, not!
Most retail investors and homebuyers make this mistake. They buy when the prices are peaking. Naturally the returns are not as expected. Am I right?
Well, I am citing the basic principle of investing here. If you are on board, I would further explain why 2018 should be the year you should enter the real estate market.
From the past few quarters, the real estate market in India has been going through a phase of massive change. The regulatory reforms implemented through frameworks defined under the Real Estate Regulatory Act (RERA), and Goods & Services Tax (GST) to an extent, have led the sector in a certain direction.
It is mandatory for all the real estate projects to be in compliance with the provisions of RERA, which attempts to make sure that projects are delivered in time and the money paid by buyers for certain projects is not squandered for other purposes.
In short, RERA protects consumers’ interests. It will be impossible for fly-by-night operators to be in the market and only the most-committed players will be able to navigate the roadmap. This will benefit both buyers and sellers, in the long term.
It is a buyers’ market
The combination of excess supply, high prices and low consumption has translated into huge inventories across the country. The consumption side has also been impacted by demonetization. Clearly, it is a buyers’ market for now – and for the next few quarters. But not for long!
With RERA in place, developers are now focusing on completing their existing projects. The new home launches, across top eight cities in India, have gone down by more than 75 percent in the third quarter of the current fiscal, as per industry research reports. The overall number of project launches has gone down by more than 40 percent in the first nine months of the current calendar year. These trends imply that the supply side will gradually find some equilibrium with demand, and prices will subsequently start picking up pace.
However, in the present environment, there is a situation of excess supply and property buyers are in a better position to negotiate, and grab a great deal.
As per industry reports, the National Capital Region (NCR) and Mumbai Metropolitan Region (MMR) have around 2 lakh and 1.8 lakh unsold units respectively.
Home loan interest rates are at all-time low
The excess liquidity in the banking system have led the RBI rejig the key lending rates. Resultantly, the home loan interest rates that were recorded at around 9.5 percent a year in 2016 have now been floating in the range between 8.3-8.4 percent.
That makes for considerable savings in the EMI costs; enabling people to avail of low-cost home finance, and become a home owner. It is expected that the home loan rates will remain low for the next several quarters and may even come down further.
Considering the average annual rental yields at 5-6 percent, there is not much difference between the costs of rent and owning a home.
Steady revival of interest from global investor fraternity
The implementation of overarching regulatory mechanisms has instilled a much higher level of confidence in the global investor fraternity. The real estate sector is projected to receive Private Equity (PE) investments to the tune of US$4 billion during this fiscal year, as per industry reports.
Not just the PE funds from the US, Canada and Singapore are interested in infusing capital in the sector, but countries such as Japan, China, Qatar, Hong Kong and the Netherlands are also poised to invest in the sector.
At the same time, global sovereign wealth funds—that are otherwise known for their risk-averse, conservative approach—have been increasing their exposure to the market and it proves that the sector is headed in the right direction.
As for property buyers, it is a sign of revival on the cards.
In overall, the current environment presents an opportunity to buy property and make the best out of the coming year.
(The author is COO of Square Yards)
Updated: Nov 03, 2017 | 11:07 IST | ET Now Digital
Good news for State Bank of India (SBI) customers and for those willing to take a home loan in the near future. SBI, the country’s top lender by assets, has made its home loans cheaper. The bank has reduced home loan interest rates by 5 basis points to 8.30 per cent per annum. With this reduction, SBI’s offering in the home loan segment has become the lowest in the market, as the bank claims.
The new rates are effective November 01.
The effective interest rate for all eligible salaried people will be 8.30 per cent per annum for loans up to Rs 30 lakh. Rates have been reduced by 5 bps point in all the brackets. Over and above of 8.30 per cent rate, an eligible home loan customer can also avail an interest subsidy of Rs 2.67 lakh under the Pradhan Mantri Awas Yojana scheme.
At present, for a new customer there’s now the possibility of taking bigger loans or incurring lower interest costs in making their dream home purchase a reality.
Before you finalise the loan ask these five key questions to get a good deal on your home loan
1. Negotiate rate of interest
Lenders mostly define the interest rate in a minimum and maximum range, the actual rate charged depends on your eligibility criterion. As a borrower you have the ability to negotiate a better interest rate.
Financial advisers say you can do this not just by comparing your loan options, but also by improving your eligibility by adding a co-borrower and combining the co-borrower’s income with your own.
2. Buy a home loan only after comparing
Before you zero in on a loan, compare between the different loan products available in the market.
Look at the equated monthly installments (EMIs), the interest rates, the processing fee and other related charges to choose the perfect loan. These days home loans offered online, you can always explore with a few clicks.
Look at the base rate, the margin offered, what is the maximum tenure offered, and how is the eligibility calculated and most importantly whether a property similar to yours has been funded by this lender earlier.
3. Fixed rate or floating?
Home loans can be extended either on fixed or on floating rates. If a home loan is taken on fixed rate then the interest rate will not change during the entire loan period and the borrower continues to pay the same EMI throughout the loan term.
All new floating rate bank loans today are linked to the MCLR, whose interest rate automatically resets at fixed intervals. This is beneficial for customers since interest rates have been trending downwards of late.
If the interest is expected to fall then opt for a floating rate and if it is expected to rise then opt for a fixed rate loan.
One can pre-close the loan ahead of its original tenure. If you are on a floating interest rate, no charge will be applicable. If you are on a fixed rate, there may a charge applicable.
4. Understand your borrowing capacity
People often decide to pay high EMIs thinking the loan load would come down with time due to annual increases in their income. However, their incomes may or may not rise with time. Therefore, they must borrow to the limit where paying EMIs would not stretch their finances.
5. Additional costs
When you take a home loan remember that interest is not the only cost you have to bear; there are certain additional costs too.
Every time you apply for a loan with a bank or non-banking financial institution, you are charged a percentage of your loan amount as processing fee. The amount may vary from 0.5 per cent to 1 per cent of your loan amount.
Legal fees are charged by banks or NBFCs to ascertain the legal status of any property. Usually, legal fees are applicable for home loans or loan against property.
Depending on your loan type, you may be charged an amount for prepayment of your loan. If you do not repay your loan EMIs on time, you will be charged a late payment fee. The late payment fee will depend on your lending bank or NBFC and the type of loan.
By Staff Reporter | Published On: Mon, Nov 13th, 2017 | Accommodation Times Bureau
NEW DELHI: Tata Housing said they are partnered with Indiabulls Housing Finance on Friday to offer home at 3.99 percent interest rate for those home buyers who buy flat in ongoing 11 projects. In the current scenario, the home loan rates are around 8.5 percent.
On Friday ‘Monetize India’ campaign was launched by Tata Housing in partnership with Indiabulls Home Loans.
The company said in a statement, it gives more opportunity to home buyers to own Tata Housing property “at a special, one-time home loan rate of 3.99 percent. This special home loan rate would be valid for the first five years.”
“It has been an eventful year for the sector in India which is standing on the threshold of change…We hope that this will stimulate fence-sitters to act on their need or wish to invest in real estate, as it continues to be one of the best forms of security and wealth generating assets,” According to Tata Housing Head – Marketing and Sales Tarun Mehrotra.
The scheme, valid from today until December 12, 2017, would be offered across 11 projects by Tata Housing in seven cities.
Our Bureau | MUMBAI | NOVEMBER 8 | Hindu Business Line
The clamour to be the cheapest home loan provider is getting louder. A week after SBI said it is charging the lowest interest rate on home loans following a 5-basis-point (bps) cut in its marginal cost of funds based- lending rate (MCLR), Bank of Baroda (BoB) has joined the bandwagon.
On Wednesday, BoB said it is offering the cheapest home loan rate (at its MCLR of 8.3 per cent) for ‘best rated’ customers across different categories, irrespective of the loan amount. The tenure is up to 30 years for all categories — salaried and self-employed.
‘Best rated customers’ are those with a credit score of 760 and above. For customers with a credit score below that, BoB, based on risk rating, charges a mark-up of up to 100 bps over its MCLR.
“The lowest rate of interest currently offered by other public sector banks is applicable only to a small category of customers such as salaried women seeking a loan of less than ₹30 lakh. However, a male entrepreneur with pristine credit rating seeking a home loan of more than ₹75 lakh may end up paying a rate of interest of 8.5 per cent and above at other banks,” BoB claimed in a statement.
Last week, SBI said that following a 5 bps reduction in its MCLR, its home loan rate is the lowest in the market. One bps equals one-hundredth of a percentage point.
(This article was published on November 8, 2017)
By Sangita Mehta | ET Bureau | Updated: Oct 31, 2017, 07.48 PM IST | Economic Times
MUMBAI: Country’s largest bank, State Bank of India (SBI), announced a 5 basis point cut in its benchmark lending rates across maturity, which first cut after 10 months.
The bank has pegged its benchmark rate to 7.95% for a term of one year with effect from November 1 against 8% year charged earlier. Most banks sharply reduced marginal cost of lending rates (MCLR) in January 2017, post demonetisation exercise after they saw huge inflow of deposits.
The reduction in the lending rates also comes within weeks of Rajnish Kumar, taking charge at the helm for a term of three years. The bank will now pegged MCLR to 7.70% for overnight borrowing and 8.10% for three years. Other largest banks like ICICI Bank and HDFC Bank too may announce a token cut in the lending rates.
The new rates will immediately benefit the new borrowers. However, the existing customers may have to wait for a while since under the MCLR system the interest rates charged to the customers is locked for a fixed term.
For home loans, the interest rates are fixed for a term of one year and thus the existing borrower will benefit at the end of the lock-in period.
For salaried women borrower seeking loan of less than Rs 30 lakhs, the bank will now charge 8.30% and for loans between Rs 30 lakhs and Rs 75 lakhs it will charge 8.40%.
For non-salaried women borrower seeking loan less than Rs 30 lakhs the bank will now charge 8.40% and for loans between Rs 30 lakhs and Rs 75 lakhs it will charge 8.50%. For all other borrowers, the bank charges 5 basis points more above the rates charged to women borrower.
The reduction in rates comes at a time when the Reserve Bank of India is revising the formula of pricing the loans. An RBI committee headed by Dr Janak Raj has suggested that interest rate on loans be pegged to external benchmark rates arrived at by market trading rather than leaving it at the discretion of each bank which appear to be coming up with some formula that would defy the best rates for most customers.
While announcing the monetary policy in October 4, the RBI had said, “Arbitrariness in calculating the base rate and MCLR and spreads charged over them has undermined the integrity of the interest rate setting process. The base rate and MCLR regime is also not in sync with global practices on pricing of bank loans.”
Shaveta Dua and Sonam Lalhotra | Magicbricks | Oct 16, 2017, 14:14 IST
An NRI or a non-resident Indian can easily take a loan from any of the lenders in India for buying a property in the country. Magicbricks tells you how you can avail of a home loan without physically being present in India.
1) A resident Indian as a co-applicant or a co-borrower or a co-owner of the property should be a part of the application that is to be submitted
2) The minimum age of the borrower should be 24 years
3) The borrower needs to submit last three months’ salary slips and bank statement of the salaried account to the lender
1)There are a lot of online platforms available wherein you submit an online application with all the details
2) Such platforms help shortlist the right lender. They also give an option of uploading all the requisite documents online and then manage the entire process on your behalf
3) You will have to issue a power of attorney in the name of your co-applicant, maybe your family member or whoever is going to be the joint owner of your property or co-applicant to the loan in India
4) Additionally, you’ll have to go to the Indian embassy in your country and take the power of attorney format from the lender to whom you’re applying. There is a definitive format which has to be signed in favor of your Indian co-applicant in the application, after which the Indian Embassy will put a seal of approval on it
Switching banks: If you wish to transfer your home loan from one bank to another in the wake of lower interest rates, first check if there is a switching cost with the lender from whom he has taken the loan. If there is no cost of switching then there could be other costs involved such as fee which the new lender will charge. Stamp duty may also be applicable if you are creating a mortgage deed in favour of the new lender.
Be flexible: Taking a loan on fluctuating rate of interest is recommended because fixed rate of interest is generally 50 – 100 basis points more than the flexible rate of interest. They also attract a foreclosure charge whenever you want to switch. Thirdly, the Indian market rates may go down. If you are going to take 9.4 per cent floating rate right now, it is quite likely that in the next 12 months you might be at 8.75 per cent. Instead, if you go for a 10 per cent fixed rate of interest, you will be stuck at 10 per cent even if the market comes down to 8.5 or 8.75 per cent
Pre-payment: If you wish to make a pre-payment then you should tot up the numbers diligently. How much interest cost is getting saved by reduction in tenure? If you feel that is more as compared to the tax benefit which you would have availed by investing this money somewhere else, then you should go for it
What you must know
1) For a salaried customer, the maximum tenure possible is 30 years. For a self-employed person, it is 20 years
2) First get a loan approval for yourself and then decide on the value of the property you want to buy. Your savings should give you enough financial buffer
3) The age of the property does not matter much. If the property is well-maintained and the residual age of the property is at least 12 years, then the bank will definitely fund it
4) The home loan interest rates remain the same for Indian residents as well as NRIs
5) As in the case of Indian residents, if a female is the joint owner of a property, a five basis points reduction in the rate of interest is available under home loan
6) Two NRIs can also opt for a joint home loan in India but only if they are blood relatives and they stay in the same house
31 August 2017 | Moneylife Digital Team
With the Reserve Bank of India (RBI) having cut interest rates, banks have been quick to lower the interest rate on savings account from 4% to 3.5% on deposits up to Rs1 crore. State Bank of India (SBI) was the first to announce the cut and this means an immediate fattening of its bottom-line by as much as Rs4,000 crore at the cost of depositors. Remember, Indian banks had not raised savings account interest rate even when interest rates were soaring; but, as always, they are quick to cut. Other banks have followed SBI’s lead.
From 1 April 2017, SBI had announced the levy of a charge for failure to maintain a minimum quarterly balance in savings accounts. As Moneylife Foundation has said in its campaign against bank charges, this affects students and pensioners the most. SBI has always been the safe, go-to bank for both these categories of depositors. It is learnt that a Right to Information (RTI) application filed by Chandrashekar Gaud has shown exactly how the Bank has benefited.
SBI earned Rs235.06 crore as penalty from 38.87 million accounts only in the first quarter of this financial year. This means that the Bank could earn nearly Rs1,000 crore from such penalties alone. Given that banks are unable to recover their bad loans effectively, this appears to be the easy way to recover losses by penalising the most hapless depositors with the least amount of funds. According to a report in Dainik Bhaskar, SBI is deducting charges even from zero balance accounts of poor students, whose scholarship amount is less than what the Bank mandates as the minimum average balance (MAB).
The State-run lender has demanded that depositors maintain a minimum balance of Rs5,000 for urban and Rs1,000 for rural areas, failing which it levies penalty charges. Ironically, poor scholarship students in metro cities, such as Delhi and Mumbai, are also being forced to keep an impossible minimum balance of Rs5,000. So far, the government has not bothered to respond to pleas about such unconscionable charges. Moneylife has always argued that banks earn hefty spreads of over 7% on deposits which are among the highest spreads in the world; so banks have no reason to levy innumerable charges on ordinary depositors. SBI also levies Rs10+ service charges per ATM transaction, Rs20 for other bank ATM transactions, and Rs50 for branch transactions beyond the four free transactions per month.
An expert says in comparison to savings account, liquid funds will give better returns as the interest rate on them is around 6.5% which is 1-2% higher than savings deposit
Vivina Vishwanathan | Mon, Jul 31 2017. 07 53 PM IST | LiveMint.com
On Monday, State Bank of India (SBI), the country’s largest lender, cut the interest rate on savings account deposits from 4% to 3.5% per annum. The bank, in a BSE notification, said the 3.5% per annum interest rate is for deposits up to Rs1 crore in a savings account. For deposits above Rs1 crore, account holders will continue to earn 4% interest. Here is a look at what it means and what you should do:
The rate cut
Till 2010-11, the interest rate on savings account deposits stood at 3.5%. In October 2011, the Reserve Bank of India (RBI) deregulated interest rate on savings accounts. This allowed banks to set their own interest rates. From 2011-12 onwards, a majority of the large commercial banks offered an interest rate of 4%. However, then new banks such as Yes Bank Ltd and Kotak Mahindra Bank Ltd started offering higher interest rates of 6-7%. Even today these banks offer a higher interest rate.
But why did SBI cut its interest rate?
“The rationale is that the real interest rate is very high right now. In April 2011, interest rate on savings accounts was 3.5% and then there was a negative carry of nearly 5%. Today, if you look at inflation and all other benchmark rates, there is a positive carry of nearly 2.46% on savings bank interest. Real interest being so high, there was no choice for the bank but to bring down the savings account interest rate. The choice was either to raise MCLR (marginal cost of funds-based lending rate) or reduce the savings bank rate. We didn’t consider it appropriate to raise MCLR,” said Rajnish Kumar, managing director, SBI.
What should you do?
Financial planners don’t recommend leaving money idle in a savings bank account. “Typically at 4% interest rate, it was never recommended to leave money in a savings account. At 3.5% it further doesn’t make any sense at all,” said Surya Bhatia, a New Delhi-based financial planner.
Then what should you do?
“Ideally, you should put your money in instruments that give you better returns. You can make use of sweep-in fixed deposit product or liquid funds,” said Bhatia. If you are under the higher tax brackets, fixed deposit may not work for you. Liquid fund will be a better option.
Swarup Mohanty, chief executive officer, Mirae Asset Global Investments (India) Pvt. Ltd, said, “For the first time, the realization of a low interest rate is likely to hit the consumers. SBI’s move will also start the entire process of shifting investment from guaranteed products to other financial assets. This is going to be a significant turning point for incremental money to move towards financial instruments. However, I am not concluding that all money will come to mutual funds but we will benefit,” said Mohanty.
So what is the interest rate on liquid funds?
“In comparison to savings account, a liquid fund will give you better returns. Currently the interest rate on liquid funds is around 6.5%. Last year it was around 8-9%. In any case you will benefit since you are likely to get 1-2% higher returns higher than savings deposit,” said Mohanty.
Hence, instead of leaving your money idle in a bank account, put it to work through other financial products.
Mayur Shetty | TNN | Updated: Jun 7, 2017, 03:10 PM IST | Times of India
MUMBAI: In a move that will encourage banks to lend more for housing in large cities and make high value home loans cheaper, the Reserve Bank of India reduced the risk weightage on home loans above Rs 75 lakh to 50% from 75% earlier.
“Considering the importance of the housing sector and given its forward and backward linkages to the economy, it has been decided as a countercyclical measure, to reduce the risk weight on certain categories. It has also been decided to reduce the standard asset provisioning on such loans,” RBI said in its monetary policy.
In its monetary policy review the RBI retained the repo rate at 6.25% and the reverse repo rate at 6%. The marginal standing facility (MSF) – an emergency funding facility continue to remain at 6.5% as also the cash reserve ratio of 4%.
In another move that will ease liquidity in the banking system by close to Rs 50,000 crore, Reserve Bank of India has reduced the statutory liquidity ratio (SLR) – the prescription for minimum holding of government securities. As against investing 20.5% of their deposits in gilts, banks will now have to invest only 20% with effect from June 24, 2017. RBI said that the reduction was aimed at allowing banks to comply with the international norms on liquidity coverage that come into effect from January 2019.
It was widely expected that the central bank would keep rates on hold. However, economists believed that RBI would ease its stance from `neutral’ to `accommodative’ to send a message that easy money conditions would prevail. The central bank however continued to maintain a neutral stance on the ground that easing of prices might be temporary. It also pointed out that fuel prices have been hiked since the inflation numbers were published and prices might rise further.
POSTED BY: IBADMIN | JULY 14, 2017 | http://www.IndiabullsHomeLoans.com
The joy of owning your own space, a home you can call your own, is a dream for many. But thanks to home loans, many are able to realise this dream. But there comes a time, after one buys a home, that the satisfaction of owning your own place may be dampened by the financial burden of EMIs.
Well, what if we told you there is a way? You can let nothing take away your happiness by simply refinancing your home loan.
What does refinancing your home loan mean?
Refinancing your home loan is nothing but a home loan balance transfer. It simply means the option to switch to another lender who can give a lower home loan interest rate. With home loan balance transfer, you can transfer home loan from one housing finance company to another. Home loan transfer occurs when the entire unpaid principal loan amount is transferred to another home loan finance company for a lower home loan interest rate or to avail a top-up on the original loan amount. The financial institution that had originally extended the loan to you gets the unpaid amount and you have to, in turn, now pay your EMIs at the new rate to the financial institution that has taken up the loan.
How do you go about it?
Knowing the value of your property is essential. The next step is doing a cost-benefit analysis i.e comparing the risks versus the rewards. Make sure that the profits you earn out of the lower interest rates are more than the home loan transfer charges you pay.
What are the advantages?
Lower Interest rates:
A lower rate of interest is one of the major reasons that borrowers transfer home loan from one lender to another. For instance, an individual is paying higher interest on an existing home loan than that offered by another lender, he would naturally be tempted to go in for a new loan that brings down his total interest cost and consequently his EMI. It helps in increasing your savings due to the lower interest rates which result in lower EMIs.
Reduce your loan tenure:
The loan tenure is inversely proportional to the EMI payments you are making. Higher the loan tenure, lesser the EMIs, and vice versa. Similarly, the total interest paid is directly proportional to the tenure. The higher the tenure, the higher the total interest paid. One can opt to change the tenure in case of changing life circumstances like a promotion in your job, windfall gains in business which enables the person to afford a higher EMI payment and shorten his tenure, and get debt free earlier. Visit Home Loan Interest Rates page to know more.
Get additional loan opportunity:
Along with the lower home loan interest rate, one can also get an opportunity to get additional funds for registration purposes, home improvement or expansion purposes. One should only opt for a top-up of the loan if he is getting the benefits of lower rates.
An individual taking a loan from specified housing finance companies is entitled to certain benefits and exemptions. Section 24 of the Income Tax Act states that Interest paid on capital borrowed for the acquisition, construction, repair, renewal or reconstruction of property is entitled to a deduction. Rs 2,00,000 is the maximum amount eligible for deduction in the case of self-occupied property and for rented out property there is no limit of amount of deduction.
Diversify your investments:
You can also use home loan balance transfer to increase the tenure in order to reduce the monthly payments. This is a viable option if a better investment is found and you want to divert a part of the payments to that investment.
By Sunil Dhawan, ECONOMICTIMES.COM|Jun 20, 2017, 10.41 AM IST
The competition amongst home loan lenders is getting aggressive. Last month in May, several top lending institutions had reduced their home loan interest rates and are expected to lower them further, given the push to the housing needs in the country.
The drop in the home loan interest rate was in spite of the RBI holding on to the repo rate for the last few months.
The new option
In addition to lowering the home loan interest rates, few banks have started offering borrowers, the option to choose between 6-month reset period and 12-month reset period while taking the MCLR linked home loan.
Since April 1, 2016, when the MCLR was introduced, almost all the banks kept the reset period at 12 months. However, of late few banks have started offering the option to choose the reset period of 6 months in addition to the 12-months period. ICICI Bank has recently started giving the option to choose between 6 months and 12 months reset period. Axis Bank and Kotak Bank are the two other banks offering the 6-month reset period only.
How it matters
In a 12-month reset period home loan, if one takes a home loan in June 2017 and the RBI cuts repo rate in August 2017, even though banks MCLR comes down in the same month, the effect of it for the borrower will be seen in June 2018 only i.e. after 12 months.
In a 6-month reset period home loan, if one takes a home loan in June 2017 and the RBI cuts repo rate in August 2017, even though banks MCLR comes down in the same month, the effect of it for the borrower will be seen in December 2017 only i.e. after 6 months. For the borrower, the MCLR of the bank in December 2017 will be applicable.
In effect, there is a waiting period for the borrowers to see an impact on the EMI’s. Therefore, MCLR linked flexible home loans are sort of ‘fixed’ for a certain period of the loan.
How to choose
Choosing between the two might be a tricky issue and the answer to it may not be a straight forward one. It will boil down to the movement of the interest rate, both in the short-term and in the long-term. “If interest rates are falling, opt for a shorter reset period so that you can avail reduced rates sooner. In case the interest rates are rising, opt for a longer reset period so that your loan burden does not go up for a longer period,” says Navin Chandan , Chief Business Development Officer, BankBazaar.
Rather than looking at the shorter term movement, a long term trend could be of help to a prospective borrower. “In a scenario where a decrease in interest rates is foreseen, it might be better to opt for a shorter reset period,” informs Ranjit Punja, CEO & Co-Founder, Creditmantri.com.
Kotak Mahindra Bank since the beginning is offering the 6-month reset period loans. Sumit Bali, Sr. EVP & Head, Personal Assets, Kotak Mahindra Bank says, “At Kotak Mahindra Bank, home loan rates are linked to 6-month MCLR, thereby the rate offered changes every six months depending on the MCLR movement. Our current 6-month MCLR rate stands at 8.5%. Presently, we offer rates up to MCLR + nil spread.”
However, here is an important point not to be overlooked. “Yes, it’s a fact that home loan rates under 6-month MCLR will be revised and get reset in every six months compared to every year in 12-month MCLR, but the catch here is the markup to the MCLR, which actually adds to the effective lending rate, says Rishi Mehra, CEO, Wishfin.com.
According to Mehra, “You need not only to glance at both the MCLRs (Bank’s 6 and 12-month MCLR) but also the markup. Add the MCLR and markup in both 6-month and 12-month MCLR, and opt the one that has a lower lending rate on offer. For example, ICICI Bank offers a home loan of up to Rs 30 lakh at 6-month MCLR of 8.15% and 1-year MCLR of 8.20%. But the effective lending rate comes out to be equal in both the cases.”
Also, the quantum of loan matters. “Another factor to look at is the quantum of the loan up to which 6-month MCLR is applicable. In the case of ICICI Bank, 6-month MCLR is available for a loan of up to Rs 30 lakh only,” informs Mehra.
Can the reset period be changed
Bringing a change in the reset period may not always be an easy task. Better, if as a borrower, one gets clarity from the lender at the initial stages of taking a loan. “The reset period is typically pre-defined but it might be modified after a discussion with the lender,” informs Punja.
Can the markup change during the tenure
Let’s says, a customer takes a home loan at a certain markup. On the reset date ( after 6 or 12 months as the case may be), there is a possibility that the bank’s markup has changed. “The lenders can make changes in the markup, which gets influenced by the cost of funds to be borne by the banks. As these costs can vary from time to time, there would be changes in the markup accordingly,” says Mehra.
EMIs get reset periodically
In the base-rate era, when RBI reduced the policy rate, both the existing and the new borrowers, expected a fall in the rates with immediate effect. It’s a different story that banks delayed any such rate cut but were prompt in raising them whenever RBI increased the repo rate. There was, however, no reset period in the base rate era.
However, in the MCLR based lending, the interest rate of the home loan (and therefore the EMI’s) gets re-priced on a periodical basis. As per the RBI rules, “the periodicity of reset shall be one year or lower. The exact periodicity of reset shall form part of the terms of the loan contract.” Predicting the interest rate movement will be highly speculating in nature.
Refinancing a MCLR linked loan
In case, after few years of servicing the loan, one finds the interest rate or the markup too high or would like to switch to another reset period, refinancing the loan with another lender is an option. Mehra says, “Yes, you can switch the MCLR linked home loan to another bank at any time. The good thing is that you can do that without paying any foreclosure charges to the existing lender as it is a floating rate loan. However, you may have to pay a processing fee at 0.5%-1% on the transferred amount. A stamp duty at 0.20%-0.50% can also be charged by the lender.
The possibility of refinancing could, however, be remote. “With respect to changes in MCLR and reset period, on a case by case to basis, lenders might be willing to adjust your interest rates provided you have a healthy credit history. Higher the loan outstanding and better the credit history, the existing lender is likely to be flexible, and lower overall interest rates in order to retain the loan, rather than lose it to competition,” says Punja.
As far as choosing between 6 and 12 months reset period is concerned, look for flexibility and options while selecting and negotiating with the lender. “The offering of home loan on 6-month MCLR is a new phenomenon. So, you need to wait till you understand the pattern of rate offering under 6-month MCLR,” says Mehra.
Whatever reset period one chooses, it’s important to have a systematic partial prepayment plan in place to lower interest burden on the home loan. After all, the early you finish the home loan, higher will be one’s own equity in the house.
By Saloni Shukla, Sangita Mehta | ET Bureau|Updated: May 08, 2017, 03.38 PM IST | Economic Times
MUMBAI: Country’s largest bank, State Bank of India has reduced home loan rates between 10 to 25 basis points, a move that will force other lenders to reduce rates. SBI has refrained from cutting its marginal cost of lending rate (MCLR) which stands at 8% for one year. SBI has the largest share on the home loan market.
The bank will now charge salaried borrowers 8.35% on home loans upto Rs 30 lakhs as against 8.60% For loan above Rs 30 lakhs bank will charge 8.50%, down by 10 bps. The bank will continue to charge 8.60% on loans above Rs 75 lakhs. The rate cut will help only the new borrowers since the existing borrowers are locked into one year fixed rate on interest as per the rule of arriving at lending rates.
The reduction in rates comes within a month of five associate banks merging with the parent bank. Recently SBI cut deposit rates sharply by 50 basis points across different maturities.
SBI has also said that an eligible home loan customer can also avail of an interest subsidy of Rs. 2.67 lacs under the Pradhan Mantri Awas Yojana scheme. SBI said that to supplement the affordable housing push, SBI has also come out with special offerings for construction finance to the builders for affordable housing projects. “This will give a dual push both for construction finance and also for home finance for affordable homes.”
Mr Rajnish Kumar, managing director, SBI said, “We have seen a steep hike in the home loan enquiries recently and reduction in rates will further help millions of home buyers fulfill their dream of owning a home. Individuals can apply for home Loans through multiple channels.”
Interest rates on home loans have come down. But how easy, or difficult, is it to take advantage of these cuts? We spoke to some people who tried to reduce their EMIs
Ashwini Kumar Sharma, Vivina Vishwanathan | Last Modified: Tue, Mar 28 2017. 09 38 AM IST | Livemint.com
Early this year, banks and housing finance companies reduced interest rates on home loans. The falling rates encouraged Dr Amrendra Kumar, 34, hair transplant specialist and director of DermaClinix, a Delhi-based skin and hair care clinic, to approach his lender HDFC Ltd to revise the interest on his outstanding home loan of Rs80 lakh. His colleagues Dr Kavish Chouhan (who had a Rs60 lakh loan from HDFC) and Dr Jyoti Gupta (who had a Rs.30 lakh loan from Deutsche Bank) too approached their lenders. They were paying interest rates in the range of 9.45% and 9.55%.
As the loan amount was high, lower interest rates would mean a lot of savings for all of them.
They approached their lenders to revise the rates but did not get a positive response and decided to approach other lenders. They took help from a direct selling agent (a loan distributor), who offered to transfer their loans to Axis Bank Ltd, where they would have to pay 8.5% per annum. All of them decided to transfer the loans. While they were arranging the documents, the agent told them that Axis Bank can offer 8.35%, which could even go down to 8.15%, but they would have to get the documents quickly for that.
When Gupta approached Deutsche Bank, it gave her the required loan and foreclosure documents in a few days. But when Kumar and Chouhan went to HDFC, they were told to wait for up to 15 days. Due to delay in getting the documents, they could not avail the special offer but they wanted to transfer their loans to Axis Bank, as it was offering 8.5%, without any processing fee.
Deutsche Bank did not make any counter-offer but HDFC did. It first offered to reduce the rate to 8.95%, with a one-time fee of Rs5,750; and than to 8.7%. But, when the doctors insisted on moving, it agreed to match the Axis Bank rate, with a fee of Rs575. An Axis Bank spokesperson said: “Customers are offered lower home loan interest rates on the basis of their credit profile. Credit score and credit history are important parameters in the credit appraisal process.”
Based on the their experience, it seems that there is stiff competition among lenders. Therefore, borrowers should negotiate well before deciding to transfer home loans.
Things to know
Offerings: Led by State Bank of India (SBI), which cut up to 90 basis point from its lending rates, other banks too cut their rates. Housing finance companies too reduced their lending rates. For instance, HDFC Ltd reduced its home loan rates from 9.10-9.15% to 8.65-8.75%. One basis point is one-hundredth of a percentage point.
Charges: Shop around and know the charges and fees that you may have to pay for transferring a loan. According to an HDFC spokesperson, there is no selective process for doing so and old customers can move to new rates by paying a small conversion fee.
Beside lenders’ websites, agents and loan aggregator websites can also be used to compare interest rates and charges. Typically, stamp and administration charges are in the range of Rs1,000 and Rs1,500. As mentioned above, many lenders offer “nil” processing charges too. Make sure to ask if the lender wants you to buy property insurance.
Documents: You will need to have the documents in place. “The documentation required for balance transfer and purchase of a new home include proof of identity, proof of residence, latest 3 months salary slip (for salaried customers), tax returns for the last 2 years (for self-employed customers) and last 6 months’ bank statements. Home loan sanction turnaround time is 3-5 working days,” said the Axis Bank spokesperson.
“The same set of documents are required that would be needed for any new home loan. As the customer is moving from another bank to HDFC, we would need a list of documents in possession of the customer’s existing bank. We would also need the outstanding loan amount from the customer’s bank,” said an HDFC spokesperson.
Remember to arrange your Know Your Customer (KYC) documents such as identity and address proofs. Proofs of income can include Form 16, income tax return and salary slips along with bank statements, and the complete chain of property titles along with registration deed.
Duration: “If the customer has taken a loan for a project that we have already approved, then the processing time will be much faster. The duration for disbursement also depends on the documents customer provides,” said M.G. Vaijinath, chief general manager-real estate and housing department, State Bank of India. Also, it depends on the bank you are dealing with.
While transferring a home loan to lender who charges a lower interest is financially beneficial, the process is not easy. “We had to make several requests via emails and on phone, and about 4-5 visits to HDFC. At last, we had to settle with HDFC, forgoing the 0.10% lower interest that Axis Bank was offering, as it was taking too much time,” said Chouhan. A loan transfer usually takes 2 weeks, but in some cases it can take more than that, as was the case above.
Ideally you should first approach your existing lender, and check if it is ready to reduce the interest rate. Also enquire about the charges. Ask for some fees to be waived. Simultaneously, approach other lenders and use your credit score to bargain. Compare offers of your existing lender with new lenders’ carefully. Do your math and only if the long-term benefits are substantial, decide to transfer your home loan.
Business PTI | Apr, 03 2017 18:53:46 IST | Firtspost.com
New Delhi – Ahead of the RBI monetary policy this week, the country’s largest bank SBI has reduced benchmark lending rate by 0.15 percent to 9.10 percent, a move that will lower EMIs for borrowers.
Base rate or the minimum lending rate of the bank has been reduced from 9.25 percent to 9.10 percent effective April 1. The bank has also reduced its base rate by 0.05 percent to 9.25 percent.
Similarly, benchmark prime lending rate (BPLR) has also been reduced by similar percentage points to 13.85 percent from 14 percent.
With the reduction, EMIs for the new as well as existing borrowers who have taken housing and car loans at base rate will come down by at least 0.15 percent.
The new rate is effective from the date the bank merged five of its associates and Bharatiya Mahila Bank putting it on the list of top 50 large banks of the world.
The total customer base of the bank has reached 37 crore with a branch network of around 24,000 and nearly 59,000 ATMs across the country.
The merged entity has a deposit base of more than Rs 26 lakh crore and advances of Rs 18.50 lakh crore. It is to be noted that the SBI has made changes in signage and logo, with its iconic keyhole set against the background of inky blue.
There have been minor changes in the design and colour of SBI’s new look from April 1.
The background to the SBI signboard has been changed from white to inky blue while the SBI logo or the monogram is a few shades lighter than the existing blue.
By Narendra Nathan, ET Bureau| Mar 20, 2017, 04.06 PM IST | Economic Times
Just like bank depositors, those borrowing from banks also need to be alert in order to protect themselves against unnecessary charges. Given below are the most common areas where banks tend to overcharge customers.
If you compare the interest costs of your friends and relatives on bank loans—housing, auto, personal loan, etc.—you will realise that they vary drastically. And these costs not only vary across banks, but across customers of the same bank—and not because of varying customer credit scores. Some banks have been offering loans at cheaper rates to new customers, while charging old customers a higher rate. “Banks continue to follow the discriminatory practice of offering differential rates for existing and new customers and this should stop,” says Ramganesh Iyer, Co-founder, Fisdom.
As the banking regulator, the Reserve Bank of India (RBI) should stop this discriminatory practice, which it is partly responsible for creating. The RBI introduced the MCLR (marginal cost based lending rate) method, effective April 2016, to enable a faster transmission of rate cuts to bank customers, replacing the base rate method that was being used by banks to set their lending rates—earlier the base rate had replaced the less transparent prime lending rate (PLR). Now, borrowers who took loans 4-5 years back, and did not ask their bank to switch to the newer regime, are still linked to the PLR. Those who borrowed when the base rate became the benchmark are stuck with the base rate. Now, while banks are giving new loans at cheaper rates, based on MCLR, old customers are still paying higher rates.
“Since banks offer different rates, it is better to visit some common aggregator and understand the lowest rates available in the market. This will help you bargain better with your bank,” says Dipak Samanta, CEO, iServeFinancial.
To reduce your interest outgo, you need to shift your loan from base rate or PLR to MCLR. Shifting to MCLR now is a good move, say experts. “Though RBI’s stand is neutral now, rates may not go up from current levels. In fact, they may come down later—after an year,” says Balwant Jain, investment expert. Bear in mind though, in an upward moving interest rate regime, MCLR will move up faster than base rates, just like it falls faster in a reducing interest rate regime.
Loan reset charges
There are two types of loans: Fixed and floating rate. Floating rate loans are supposed to mirror the rise and fall in interest rates set by the RBI. But this rarely happens. While banks increase rates immediately, they are very slow in cutting them. The introduction of new benchmarks has also turned out to banks’ advantage. They charge customers for shifting from one benchmark to another— from PLR regime to base rate regime to MCLR regime now. The charges are levied to meet the expenses involved in drafting and registering new agreements—stamp duty, registration charges, etc. Though these expenses vary across states, ordinarily they won’t be more than 0.2% of the outstanding amount. However, some banks try to profit from this also by charging around 0.5%.
Should you go for a reset even if it involves a small charge? Yes. The amount you save will be significantly higher over the years. To illustrate, consider the case of a home loan borrower with Rs 50 lakh outstanding loan amount and a 15-year tenure. A 1% fall in interest— from 9.5% to 8.5%—will bring his EMI from down from Rs 52,200 to Rs 49,250, a reduction of Rs 2,950 per month. A total saving of Rs 5.31 lakh—significantly higher than the reset fee of Rs 25,000 even at the maximum rate of 0.5%. You may be able to get this reset cost down by negotiating with your bank. A threat of shifting to another bank often works. “Another way is to approach the branch manager. Based on the value of your relationship, they can reduce or even waive charges,” says Samanta. The ‘value of relationship’ here is crucial. If you have multiple relationships with the bank—savings bank account, credit card, other loans, investment, etc.—you have a valuable relationship and will receive a favourable treatment.
Source : https://goo.gl/FBRCpI
While availing a loan from a bank – whether it’s a floating or a fixed rate loan — one should get all the relevant details cleared from the bank. Along with the loan application form, banks are also required to provide full information about the interest rates applicable during the tenor of the loan.
By: Navneet Dubey | Published: March 20, 2017 5:20 PM | The Financial Express
While availing a loan from a bank – whether it’s a floating or a fixed rate loan — one should get all the relevant details cleared from the bank. Along with the loan application form, banks are also required to provide full information about the interest rates applicable during the tenor of the loan.
The bank should also inform the borrower about the fees and charges payable for processing (whether a floating or fixed rate loan), penalty rate of interest for delayed payments, conversion charges for switching loans from floating to fixed rates, existence of any interest reset clause, time by which a decision on the application will be conveyed to the applicant and any other matters which will affect the interest of a borrower.
“Home loan reset clause refers to the particular clause in your home loan agreement stating the period after which your fixed rate home loan will get converted to a floating rate loan,” says Naveen Kukreja – CEO & Co-founder, Paisabazzar.com
How does a reset clause apply?
An interest rate reset clause simply means that when applied, it allows a bank to review the rates and reset them at the end of a specified period of time – based on the interest rates prevailing at that time.
“The reset clause applies to home loan borrowers opting for mixed rate home loans. Under the mixed rate system, your interest rates will remain fixed for a teaser period, usually for the first 2–4 years of your tenure, after which your loan gets converted to a floating rate regime. Remember that the fixed rate levied during the teaser period will be 10–20 bps higher than the floating rates prevalent at the time of the loan sanction. Similarly, borrowers should be prepared for regular increase or decrease in their EMIs during the post teaser period, depending on the prevalent interest rates,” says Kukreja.
Even your floating rate charged during the post-teaser period might be different from a borrower opting for floating rate loan with the same date of loan sanction. Borrowers should carefully go through the charges and rates of mixed rate home loans and compare them with the floating rate loans before deciding the type of interest rate,” he says.
One should also know the following aspects before opting for a floating interest rate:
- The base rate mentioned by the bank to which the floating rate of interest is associated with.
- The agreement clauses which specify a minimum interest rate clause.
- The reset dates mentioned by the banks, if any, like January 1, April 1, July 1, etc.
- Whether the margin can be changed during the tenure specified in the loan or not.
Source : https://goo.gl/GEP3ye
Banks have aggressively cut their home loan rates and once they begin fixing their bad loans, rates will drop further. Incremental business growth too could get slower as banks garner market share
Aparna Iyer | Last Modified: Wed, Mar 22 2017. 08 28 AM IST | LiveMint.com
Housing finance companies (HFCs) have had the best run over the last one year with their valuations soaring, especially after the government’s demonetisation exercise. The fact that in the wake of falling corporate loans, retail-focused lenders and HFCs in particular have the healthiest businesses has contributed a lot to these valuation increases.
Default rates in home loans are much lower than in corporate loans and the lowest among various retail loan segments. Notwithstanding the impact of the currency withdrawal on the real estate sector, home loan repayments haven’t been derailed while all other loans have succumbed to rising defaults. For instance, Housing Development Finance Corp. Ltd’s (HDFC’s) bad loan ratio was 0.81% as of December while that of Dewan Housing Finance Corp. Ltd (DHFL) was 0.95%. Bad loan ratios of banks are massive compared to these, courtesy their corporate loan book.
But the valuation of a business has a lot to do with future earnings and this is where the going will get tougher for HFCs.
Here is a line of caution that investors should focus on. The home loan market is getting extremely crowded, with most banks aggressively expanding their portfolio. The largest home loan lender is still a bank, State Bank of India (SBI), and it has been aggressive in the market for the past five years. SBI’s home loan book has grown at a 16% capital adjusted growth rate during the said period despite the large size, while its market share has remained at 15%.
But SBI is an old player and the new lenders who had jumped on the home loan bandwagon are all banks that were struck by rising corporate bad loans and shrinking credit growth. Bank of India, Bank of Baroda, Axis Bank Ltd, Kotak Mahindra Bank Ltd and others have laid out plans to expand mortgage loans. Further, predominantly corporate lenders, who had reduced their exposure to the home loan market, are now making a second entry.
The ensuing competition will begin to squeeze margins and this has already begun. Banks have aggressively cut their lending rates and once they begin fixing their bad loans, rates will drop further. SBI’s home loan rate has dropped 100 basis points (A basis point is one-hundredth of a percentage point) in the last one year and both SBI and HDFC currently give home loans at 8.5%. HFCs such as DHFL, CanFin Homes Ltd and Repco Home Finance Ltd lend at slightly higher interest rates.
Analysts at Kotak Securities Ltd note that spreads and margins for HFCs will narrow as the decline in their cost of funds too will be limited.
Incremental business growth too could get slower as banks garner market share. Axis Bank’s market share has risen by 60 basis points in the past two years while that of Kotak Mahindra Bank has grown by 50 basis points.
HFCs’ rich valuations are sure worth a second look.
Searching a dream home remains very much in the mind of the people as it gives them the assurance of their stay for lifetime. The same assurance is not possible with a rented accommodation.
By Rishi Mehra | Published: March 9, 2017 2:39 PM | The Financial Express
Searching a dream home remains very much in the mind of the people as it gives them the assurance of their stay for lifetime. The same assurance is not possible with a rented accommodation.
In the pursuit of your dream home, you invariably rely on a home loan which can be availed for as long as 20-30 years. Since the home loan tenure is so long, the eventual loan cost from the customer end can be very high. But that can reduce in the case of a woman borrower. So, stay tuned as we take through the benefits that women borrowers can enjoy in the case of a home loan.
Lower Interest Rate
The interest rate holds the key to a cost-friendly home loan journey. Home loans are invariably in large amounts for a longer duration. So, if the interest rate is on the higher side, your pocket can get pinched. A slight difference in the interest rate can reduce the flow of interest outgo substantially in a period of 20-30 years. In addition, the monthly installment will also come down. A women borrower enjoys a concession of 0.05% in the interest rate from most banks in India. Let’s see the interest rate offered to women borrowers by several lenders in India.
Interest Rate Offers of Different Lenders (Suppose Loan Amount is Rs 50 lakh and Tenure Equals to 20 years)
From the table, you can see a saving of around 38,000 for women borrowers over male applicants.
Reduction in Stamp Duty
Stamp duty does form the part of the property cost. And a difference of a few percentage can make a huge difference in your home ownership cost. The lenders finance a home loan at about 80%-90% of the property cost. As far as stamp duty goes, it differs from one state to another. Particularly, when women buy a property, the stamp duty generally remains lower. A concession of 1%-2% is generally applicable. So, on a property worth Rs 60 lakh, a woman borrower can save around Rs 60,000-1,20,000.
Like the male counterparts, women borrowers can also be eligible for a tax deduction on the home loan repayments. The maximum tax deduction allowed in the principal and interest repayments is Rs1.5 lakh and Rs2 lakh, respectively. Women borrowers applying for a home loan along with their husbands can receive the tax deduction in an equal proportion.
These are some of the benefits that women borrowers enjoy in the case of a home loan. But choose a lender that can offer you a loan at a much lower interest rate than its competitors.
(The author is Founder and CEO, Wishfin)
Adhil Shetty | Last Updated: February 15, 2017 | 13:23 IST | Business Today
Over the last two years, the Reserve Bank of India has steadily reduced lending rates. Any rise or fall in the RBI’s repo rate will have a direct impact on your home loan interest rate. Therefore, in the recent past, lenders have reduced their interest on home loan products in tandem with the lowering of repo rate. Additionally, several lenders took an axe to their own lending rates following the culmination of the 50-day demonetisation drive.
In an ideal scenario, existing loan owners should benefit from these rate cuts. But in the past, this wasn’t often the case, with repo rate cuts not being adequately transmitted to borrowers. Which is why the RBI mandated banks to switch to the MCLR regime from the base-rate regime.
Since April 1, 2016, all new loans are linked to the bank’s marginal cost of lending rate (MCLR). These loans are more responsive to rate cuts in the sense that the rates change automatically on specified intervals of time mentioned in a loan agreement.
The question now is this – if you have a home loan now, should you consider transferring to another loan with a lower interest rate?
What existing borrowers can do
If you borrowed before April 1, 2016, your loan would be linked to the base rate, which is known to be less responsive to rate cuts. Assuming that you’re paying over and above the prevalent interest rate (in the region of 8.6%), you may be tempted to move to a cheaper loan. But this decision should be arrived at after carefully calculating the benefits of the transfer.
Lower interest rates are not the only reason why you should transfer your loan. You also have to look at the quantum of long-term savings as well as loan transfer costs.
Here’s a look at how you can weigh your transfer benefits.
The transfer costs: Transferring to another loan with your current lender may not involve costs. However, transferring to another lender will cost you some money. You have to pay processing fee on the balance of the loan transferred, administrative expenses, pre-payment penalty if you had a fixed rate loan, legal charges, stamp duty, etc. The aggregate of these costs lower the savings you make on the transfer.
The Remaining Tenure: If your loan is nearing its end, a transfer may not make sense. You may save costs on EMIs, your loan transfer costs may outweigh any savings.
The Long-Term Savings: This the gross of what you will save over the remaining term of your loan through a reduction in your EMIs, factoring in the transfer costs. If your savings appear to be significant, you have a case for transferring to another loan. Don’t forget that any MCLR-linked loan you move to will have a fluctuating interest rate. Currently, the interest rates are low, but at some point in the future, the rates will start increasing again due to factors such as inflation.
When It Makes Sense To Transfer
Here’s a look at the illustration below to understand when transferring your home loan makes sense.
Suppose you had taken a home loan for Rs 25 lakh for 20 years at an interest rate of 10.50% per annum. You want to transfer this loan to another bank offering you an MCLR-linked interest rate of 9.5% per annum. Now, consider the two different scenarios.
Conclusion – Shift, Only If There Are Savings
As the illustrations reveal, opting for a loan transfer in Scenario 2 is not an economical option for the borrower. It could lead to a loss, therefore the borrower can stick to his current repayment plan.
In fact, he can make the best use of the prevalent low interest rates and pre-pay on his loan. This would help him make significant progress in terms of repayment, and put him in a stronger position when the interest rates start rising again.
Conversely, when there’s a sizeable part of the loan tenure remaining, there may be significant long-term savings from moving to a loan with a lower interest rate.
In conclusion, do not make a hasty decision related to your home loan transfer. Calculate all the costs of transfer. You can take the help of various online calculators to calculate these costs and your savings. You could also approach your lender to ascertain these numbers.
(The writer is CEO, BankBazaar.com)
By Dipak K. Dash, TNN| Updated: Feb 15, 2017, 02.37 PM IST | Economic Times
The rebate in interest rate is likely to push housing demand in urban areas and thereby help the sector to revive.
Anyone who has applied and got a home loan sanctioned after January 1 and has less than Rs 18 lakh annual income, will be eligible for interest subsidy of 3-4%. Prime Minister Narendra Modi had announced the interest subsidy on December 31, though the annual income criteria was not announced.
This benefit interest subsidy can also be availed by unmarried and earning young adults for acquisition/ construction of a new house including repurchase. Moreover, flats measuring up to 960 sq ft and 1,184 sq ft will be eligible for 3% and 4% interest subsidy respectively for the specified income group.
TOI on January 4 had first reported that the housing ministry had moved a proposal to provide 4% rebate on interest rate for loans up to Rs 9 lakh and this can be availed by those who earn up to Rs 12 lakh annually in urban areas. Similarly, people earning up to Rs 18 lakh annually will be eligible to avail 3% rebate on interest for loans up to Rs 12 lakh.
Sources in housing finance sector said that though the government had finalised the policy, it has not yet announced it because of election code of conduct. In fact, the ministry had held a meeting with banks and housing finance companies where the operational guidelines for “credit linked subsidy scheme for middle-income groups (CLSS-MIG)” was discussed.
The rebate in interest rate is likely to push housing demand in urban areas and thereby help the sector to revive.
Magicbricks | Jan 30, 2017, 03.39 PM IST | Times of India
Banks have adopted the Marginal Cost of Funds based Lending Rate (MCLR) by replacing the base rate system, starting April 1, 2016, as per the Reserve Bank of India’s (RBI’s) guidelines. Why was this done? “The RBI wanted to reduce the time taken by banks to pass on the benefits of rate cuts to borrowers. Banks were seen to be reluctant to cut rates, which meant that customers continued to repay loans at higher rates. Therefore, the RBI devised the MCLR system under which rates are revised more frequently and the benefits of any cut are passed to customers immediately,” says Adhil Shetty, CEO, BankBazaar.
While talking to Magicbricks, State Bank of India, Chief General Manager, MG Vaijinath pointed out the key points that consumers should adopt to get into the MCLR system.
Customers who have taken loan before April 1, 2016 does not have to do anything. The bank they are affiliated to will automatically reset the link. Those who have not opted for Base Rate, they need to decide whether or not to link their accounts to MCLR. If a customer decides to the former, then a simple handwritten consent letter needs to be submitted to the bank.
For the first year, SBI will not migrate the new customers and therefore they will continue to pay 9.5% under Base Rate. On completion of a year, the reduction rate amount can be enjoyed by the customer from the bank without paying anything extra.
Those who want to stay in the 11% rate, the bank will issue a new home loan. This is because every loan under the Base Rate when given to the client was decided on the basis of higher rate. The bank would now migrate the client to lower base rate which translates to refinancing.
Earlier the rate was 5% of the loan without any ceiling but now it has been reduced to Rs 25,000 for loans up to Rs 3 lakh.
If you take an MCLR-linked loan, the interest rate that you pay will be subject to changes at fixed intervals, as per the tenure for which rates are linked.
Banks also charge a premium over the MCLR rate for the particular loan instrument linked to it. For example, a bank may have one year MCLR at nine percent, but it may charge a higher rate, say, 9.20 percent or 9.40 percent, keeping a 0.20 percent or 0.40 percent margin over the base MCLR rate.
If you are an existing borrower servicing a loan based on the base rate system, you are allowed to switch to the MCLR system without any additional charge. But a switch from your existing bank to another can involve charges like processing fee and administrative charges.