With effect from 1 July 2020; SBI will offer home loans at 6.95%; while the Bank of Baroda will be offering home loans from 6.85% onwards.
The bank also reduced the MCLR from 7.25% to 7%.
This trend in falling interest rates on home loans is being observed ever since the RBI started reducing its policy rates to revive the economy. In its last monetary policy meet, RBI reduced the repo rate by 40 basis points to 4%. The reverse repo rate was reduced by 40bps to 3.35%.
Ever since the policy rate cut was announced, the rates for home loan consumers have been falling. However, while SBI rates are starting at 6.95 percent, the actual rates will depend on the amount of the loan and the borrower’s profile. For the salaried class, the interest rate is 7 percent for loans that are up to INR 30 lakh. For loans between INR 30 lakhs and INR 75 lakhs, the interest rate is 7.25%. And for loans above INR 75 lakh, the interest rate stands at 7.35%.
Female salaried borrowers who have a high credit score can get home loans at just 6.95%.
Of late, the home loan segment is becoming very competitive. Previously, the interest rates of private and government lenders were the same. However, ever since the lockdown began, private lenders are not being aggressive, since transactions are slow.
Eligibility and EMI
A cheap rate from the public sector banks implies a lower EMI or increase ineligibility.
Assume that a borrower takes a loan of INR 25 lakhs from SBI for 20 years. And the private lender is charging 50 basis points higher. The EMI from SBI at a rate of 6.95 percent will be INR 19,308. However, from the private lender, it would be INR 20,064. Thus, in taking the loan from a private lender, the borrower will have to pay INR 1.81 lakhs extra.
At the same time, a lower interest rate would mean higher eligibility for the borrower. Therefore, someone who is earning INR 45,000 will be eligible for a loan of INR 25.23 lakhs at an interest rate of 7.45%. On the other hand, if the interest rate drops by 50 bps, the eligibility for the same person increases by INR 1 lakh.
However, these criteria differ from one institution to another. There are many other factors also that determine it.
Make sure that you do not choose a lender just based on the interest rate alone. Private lenders have high scopes for negotiation and are faster in disbursing loans than the public sector banks.