Home loan rates in India are at its lowest in eight years as the country’s largest bank, State Bank of India reduced it’s loan rates sharply by 0.90%. Expectations are high that private banks such as ICICI and HDFC Banks will also follow suit.
After the move, its overnight marginal cost of lending rates (MCLR) fell to 7.75% from 8.65%.
The rates for SBI’s one-year loans are 8% against 8.9% earlier, for two year loans 8.1% and three-year loans, 8.15%.
What happens to your home loan?
A 20-year loan is typically benchmarked against 1-year rates.
On a Home Loan of Rs. 20 lakh for 20 years, the EMI of a borrower is reduced by about Rs 835 per month (EMI down to Rs 17546 from Rs 18382) thereby saving Rs 10,025 per year.
While on a Home Loan of Rs. 50 lakh for 20 years, the EMI of a borrower is reduced by about Rs 2088 per month (EMI down from Rs 43867 from Rs 45955) thereby saving Rs 25,060 per year.
What about auto and personal loans?
Auto loans rates and other consumer loans are also likely to be reduced.
The women home loan borrowers of SBI will be able to avail loan at interest rates of 8.20% while others can avail home loan at 8.25%.
Similarly Union Bank of India has reduced its one year MCLR by 65 basis points or 0.65% to 8.65%.
The rate cut comes after a nudge from Prime Minister Narendra Modi in his year-end speech, where he said that massive inflow of deposits spurred by the demonetization of high-value banknotes has led to a significant reduction in the cost of funds.
The new loans will be effective from January 1.
On Friday, IDBI Bank and State bank of Travancore had also announced cut in lending rates. Borrowers of IDBI bank seeking three-year loans will be charged 9.30%, down 0.40%; while six-month loans have been pegged at 8.90%, down 0.35%.
IDBI bank will charge 9.15% on one-year loans against 9.30% now.
Banks have received an estimated Rs 14.9 lakh crore after the demonetisation move. This raised expectations banks would have room to cut lending rates, which is seen as vital to increase credit growth and spark a revival in private investments.
Lower lending rates will be welcome by the Reserve Bank of India, which has cut the policy rate by 175 bps or 1.75% since the start of 2015 but has felt banks were being too slow in cutting their lending rates.