Home loans turn cheaper as banks cut rates

The Bank of Baroda headquarters is pictured in Mumbai, India, April 27, 2016. REUTERS/Danish Siddiqui/Files

MUMBAI/NEW DELHI: Home loans are set to turn cheaper with state-run Bank of Baroda lowering its rate to as low as 8.35 per cent – the lowest across industry – while some other lenders including Allahabad Bank and Bank of Maharashtra also cut their rates for housing and other loans.

Smaller private sector player Sundaram BNP Paribas Home Finance also announced a reduction in its rate for new housing loans.

State-run Bank of Baroda (BoB) reduced its home loan rates by 70 basis points to 8.35 per cent, which will be applicable for customers having a strong Cibil score.

At 8.35 per cent, the rate is lower than industry leader State Bank of India’s 8.50 per cent offer.
SBI and some other lenders, including private sector major HDFC Ltd, have already reduced their rates. Some experts have attributed reduction in interest rates to surge in deposits with the banks post demonetization.

BoB said its existing customers whose loans are linked to base rate can also switch to the new MCLR regime without any additional charges.

However, several other lenders are charging a switchover fee, which is a minimum of INR 10,000 or 0.5 per cent of the outstanding loan amount in case of SBI.

Bank of Maharashtra has cut its benchmark MCLR (Marginal Cost of Funds based Lending Rate) by 30 bps effective January 7. It’s one-year MCLR is set at 8.95 per cent.

Allahabad Bank said it has reduced its MCLR by 0.85 per cent to 8.60 per cent for 1 year tenor. With the reduction in this benchmark rate, home, car and other loans linked to MCLR would become cheaper.

Banks have switched to MCLR as their new benchmark lending rate from June last year, replacing the base rate system for new borrowers. It is calculated on the marginal cost of borrowing and return on net worth for banks. It was introduced by RBI to ensure fair interest rates to borrowers as well as banks.
However, some banks charge a premium over the MCLR to offer a loan. .

MCLR also seeks to address the regulator’s primary objective of expediting monetary policy transmission along with augmenting uniformity and transparency in the calculation methodology of lending rates. MCLR rates are revised every month.

In case of BoB, the MCLR has been reduced by 55-75 basis points across all tenors effective January 7.
“The home loan rate is linked to their Cibil scores. A customer with a Cibil score of 760 and above will be offered the lowest rate of 8.35 per cent,” a bank official told PTI.

On a home loan of Rs 50 lakh, the 70 bps reduction will translate into a saving Rs 2,496 a month and around Rs 9 lakh for a 30 year loan.

The bank’s one-year MCLR, to which all home loans are linked, is also at 8.35 per cent. SBI’s one year MCLR is 8 per cent at present.

The official said the highest home loan rate would be at 9.35 per cent. The new rates would be applicable to all loans sanctioned with effective from January 7.

He said the new rate will be floating and will change with the next review in the MCLR after one year. BoB’s current base rate is 9.60 per cent.

Home loan borrowers of other banks or housing finance companies can also shift to BoB’s reduced rate of interest but the bank is yet to decide on the loan switching fee, he said.

The bank’s interest rate on car loans and mortgage loans also starts from 8.85 per cent and 10.35 per cent.

Sundaram BNP Paribas Home Finance said its rate of interest for new housing loans would become 8.70 per cent, down from existing 9.20 per cent.

“The company hopes that this (move) will help in reviving the sluggish real estate market”, Sundaram BNP Paribas Home Finance, Managing Director, Srinivas Acharya said.-PTI

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