Are you benefiting from the drop in mortgage rates?
SBI cut mortgage rates to 6.7% for loans up to ₹75 lakh, while Kotak Mahindra Bank’s offer starts at 6.65%. SBI has an additional concession of 5 basis points for female borrowers. HDFC cut its retail prime rate by 5 basis points from March 4. Mint decodes.
How will borrowers benefit from lower rates?
Lower interest rates lower the cost of borrowing. For example, if a person made use of a home loan of ₹50 lakh at 7% for 15 years, the EMI will be ₹44,941, with an outflow of interest ₹30.89 lakh over the term of the loan. If the interest rate is reduced to 6.75%, the EMI will be ₹44 245, while the interest component, or the cost of the loan, will be reduced to ₹29.64 lakh. The borrower can also opt for a reduction in the term in the event of a drop in rates, and continue to pay the same IME to close the loan account earlier. Maintaining the same EMI and reducing the tenure duration will result in greater savings compared to reducing EMI when rates drop.
Who benefits from low rates?
Rates have been reduced for new borrowers and do not apply to existing borrowers. Existing borrowers can only benefit if the RBI cuts the repo rate, as the central bank has mandated banks to tie their mortgage rates to external benchmarks since October 1, 2019, and most banks have opted for repo rates as an external benchmark. The mortgage indexed to the repo rate is calculated on the repo rate, plus the spread or the bank’s margin. Thus, mortgage rates will automatically move with a change in repo rates because the margin remains fixed, unless a borrower’s credit rating undergoes a substantial change.
Who will be able to benefit from the lowest mortgage rate?
Banks have eligibility criteria for the lowest mortgage rate. For example, the State Bank offers the lowest rate of 6.6% to salaried women for loan applications of up to ₹30 lakh on the YONO app. For salaried men, it is available at 6.65% on the YONO application, and at 6.7% otherwise. The credit rating of a borrower also determines the rates for home loans.
What are the choices for current borrowers?
If your lender charges a higher loan rate, you can opt for a balance transfer after you calculate the savings. The balance transfer is especially recommended in the event that the rate differential offered is at least 50 basis points and the duration is 10 years or more. However, before opting for a transfer, one should also consider the fees, including stamp duty and processing fees, which can be as high as 1% of the outstanding loan amount. Some lenders also charge documentation, legal, appraisal, and technical fees. Stamp fees vary by state.
Should you opt for a bank or an NBFC?
Some non-bank financial companies offer competitive rates to mortgage borrowers and generally have less stringent criteria compared to banks. However, NBFCs offer prime rate (PLR) based home loans and the interest rates are not tied to any external benchmarks. Therefore, interest rate changes may not be as quick and transparent in the case of an NBFC compared to mortgage loans offered by banks. That said, NBFCs may be suitable for borrowers with low credit scores.
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