The State Bank of India provides home loans starting 1 July 2020 at 6.95 percent. It will be the second-lowest home loan rate after Bank of Baroda, which provides home loans starting at 6.85 percent. In the second week of June, the country’s largest bank (SBI) reported a decrease from 7.05 percent to 6.65 percent in its external benchmark related loan rate. The bank also lowered the marginal cost of the fund-based loan rate (MCLR) from 7.25 percent to 7 percent. Interest rates on home loans have dropped since the Reserve Bank of India (RBI) began to lower interest rates to boost the economy that has taken a beating from the lockdown. The central bank reduced the repo rate by 40 basis points (bps) to 4 percent at its last monetary policy meeting and lowered the reverse repo rates by 40 bps to 3.35 percent. A one-hundredth of a percentage point is one base point.
The home credit market is highly competitive. Historically, interest rates were comparable for private and government lenders. But since the lockdown started, according to intermediaries, private lenders have not been violent, as transactions are slow. For salaried, ICICI Bank home loans start at 7.45 percent (for up to ₹30 lakhs) and go up to 8.45 percent (for up to ₹75 lakhs). HDFC Ltd’s interest rates on home loans begin at 7.35 percent. Although SBI rates begin at 6.95 percent, the actual rates differ depending on the borrower’s loan amount and profile. The interest rate for wage earners is 7 percent for loans up to a limit of 30 lakh. For loans between approximately 30 lakh and approximately 75 lakh, the average is 7.25% and 7.35% for loans above 75 lakh. High-credit female lenders get home loans at 6.95 percent.
Cheaper rates from public sector banks mean lower monthly equated installments (EMIs) or eligibility changes. Assume that a borrower has been borrowing for 20 years from SBI for around ₹25 lakh loans. A private lender shall charge a higher 50 base rate. The EMI for the SBI loan at a rate of 6.95 percent would be approximately ₹19,308, and from the private lender, it will be approximately ₹20,064. The borrower would also end up paying more than ₹1.81 lakh for a private lender loan interest.
A lower interest rate also means the borrower becoming more eligible. An individual earning ₹45,000 will qualify for a loan of ₹25.23 lakh at a 7.45 percent interest rate. If the rate of interest drops by 50 bps, the eligibility of the individual will increase by nearly 1 lakh. However, the eligibility requirements vary from one lending entity to another and it is determined by several other factors. It is simply an example of how qualifications will shift if everything else is the same. Don’t pick a lender on interest rate alone, though. There is a greater negotiation reach with private lenders. We could also be quicker than public-sector banks in disbursing the loan.
