Saturday, March 31, 2012

Banks cut home loan rates by 25 bps to 75 bps

This will definitely bring cheer to home loan borrowers. Banks are cutting home loan rates by 25 basis points to 75 basis points. State Bank of India (SBI), India's largest lender has decided to allow its customers to switch their existing loans to lower rates. There is a small catch - the bank will charge a one-off fee of 1% of the outstanding loan amount for the switch over. This is good news for large number of SBI home loan borrowers whose home loans are linked to the prime lending rate which is around 14.75% at present. Currently the floating rate of bank is linked to the base rate which is ten per cent. SBI's current floating rates vary from 10.5 per cent for up to Rs 30 lakh loan, 10.75 per cent for between Rs 30 lakh and Rs 75 lakh, and 11 per cent for loans above Rs 75 lakh. This will give an option to existing home loan borrowers who are on the prime lending rate to switch over to the new floating rates that are much lower than prime lending rates. RBI had earlier prompted banks to remove the pre-payment penalty. There were lot of borrowers who were making inquiries about shifting their loans to other banks. Hence, SBI took this decision to retain existing customers by helping them lowering their interest burden, which will in turn help the bank avoid possible delinquencies.

In India, mortgage brokers are like agents who help in securing loans for individuals. Banks and individuals take   these mortgage brokers assistance for selling and securing home loans.

SBI is not the only bank to offer lower home loan rates. IDBI Bank has also slashed its floating home loan rates by 25-75 basis points in different slabs. For loans up to Rs 25 lakh, a home loan customer who opted for floating rate scheme in IDBI Bank will see a reduction of interest rate by 25 basis points. For loans between 25 lakh and 75 lakh the cut is 50 basis points while it is 75 basis points for home loans above Rs 75 lakh. IDBI Bank's base rate remains unchanged at 10.75%.

HDFC is also planning a similar move and is likely to announce this in the coming few weeks.


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