Post-demonetization, what has grabbed most of the public eye is the real estate sector and the increase in affordability among people to own a house. The lenders, sitting on a huge cash pile due to the demonetization drive, have started slashing the interest rates on a home loan. The banks are not even waiting for the cut in repo rate, the rate at which the RBI lends to commercial banks, by the central bank to slash the home loan rates. Amidst the rates slashing spree, it is Bank of Baroda (BoB) that has generated most of the buzz by reducing its home loan rates to an industry low of 8.35% p.a. Currently, its home loan is now offered at 8.35%-9.35% p.a for a period as long as 30 years. Further more, the bank has waived off the switchover fees for borrowers seeking to transfer their home loan portfolio from base rate to the existing MCLR regime for receiving the benefits of lower rate transmission. Apart from BoB, other notable banks like SBI and ICICI Bank, as well as mortgage firm HDFC Limited have also lowered their home loan rates. Let’s check out the interest rates of various home finance firms below before delving into further details. Home Loan Rates of Banks & Housing Finance Companies (Max. Repayment Period=30 Years): Bank of Baroda offers a home loan at a rate of 8.35%-9.35% per annum, while the leading lender SBI’s home loan is now available at 8.60%-8.70%. Private lender ICICI Bank has slashed the home loan interest rates to 8.65%, almost at par with SBI. LIC Housing Finance disburses home loan at 8.50%-8.70% per annum, while an interest rate of 8.60%-8.70% is charged by DHFL. HDFC Limited and Indiabulls Housing Finance have also joined the rate cut bandwagon by reducing the interest rates to 8.65%-9.25% p.a. and 8.65%-8.70% p.a., respectively. PNB Housing Finance’s home loan rates are now reduced to 8.90%-9.10% per annum, while Axis Bank has slashed its rates to 8.85%-9.35%. All these rate cuts are definitely going to enhance your loan eligibility and raising your affordability to buy a home of your choice. MCLR-A Mechanism for Rate Transparency:
MCLR is a mechanism introduced by the RBI to ensure transparency in the interest rate scenario in place of the previous base rate regime. The fact of the matter is that the RBI, before the launch of the new scheme, had cut repo rate by over 100 basis points in about 2 years time. But the commercial banks didn’t come out with an equated response as they eased the lending rates by not even a half of the RBI’s rate cut. This led the RBI to come out with MCLR, which gives banks the room to respond effectively to the rate cut made by the central bank. All floating rate home loan on or after April 1, 2016, will automatically come under MCLR. But loans disbursed before the period will require borrowers to make an application to lender requesting a switch to MCLR. Remember once you do that, you can’t go back to the old base rate system. MCLR mainly consists of operating expenses, marginal cost of funds, negative carry due to cash reserve ratio and tenor premium. The expenses that banks make for their day-to-day operation come under operating expenses. Marginal cost of funds refers to the costs banks bear while offering interest to customers on their savings and fixed deposit accounts. Cash Reserve Ratio (CRR) is another cost that banks have to bear. Actually, CRR refers to the quantum of deposits banks are required to keep with the RBI. At present, CRR is 4%. Tenor Premium is an additional rate above the existing base rate based on the tenure of a loan. While the base rate has components like the cost of funds, margin, operating expenses and CRR. The presence of tenor premium and the marginal cost of funds makes MCLR highly responsive to any cut or hike made by the RBI in repo rate. Home Loan EMI Calculator: The interest rate is a key determinant to your eventual EMI payable on a home loan. Higher the interest rate more will be the EMI and vice-versa. The computation of EMI is contingent upon three factors- Loan Amount Interest Rate Tenure Let us take these three into consideration and calculate the EMI on a ? 25 lakh loan for a period of 20 years at a prevailing rate of 8.35%-9.35% per annum at BoB. The EMI, interest outgo and overall payment turn out to be ? 21,459, ? 26,50,118 and ? 51,50,118, respectively, over the loan term. So, keep having an eye on the interest rates which could lower even further and get the keys to your dream home.
