Lower Interest Rates means more Affordable Home Loans!

Lower Interest Rates means more Affordable Home Loans!

SBI has slashed its interest rates by 0.9%, along with few other banks in India. In the past 6 years this has been the cheapest slash on home loans. The country’s largest bank has cut the interest rates on home loan to 8.6% from 9.10% with immediate effect. It is now possible to get home loan at just 8.6% of rate of interest up to INR 7.5 million. Apart from home loan for other purposes the rate would be 8.65% instead of 9.15%. This offer is extended by SBI, The Punjab national Bank as well as the Union Bank of India. Apart from these private banks such as ICICI are also looking to extend this offer to its customers.

The first page in Time of India carries this message on January 1st 2017 as a New Year gift. This merely means that the EMI amount will be reduced for monthly payment along with the rate of interest fall. However the number of years (tenure for loan) will remain the same.

What does this mean to layman?

The reduction in home loans will help home loans more affordable and easier to get. The Marginal Cost for Lending Rates (MCLR) for the next 1 year effective 1st Jan 2017 is:

Banks MLCR (%) Old Rates (%)
State Bank of India 8 8.9
IDBI Bank 9.15 9.3
Union Bank 8.65 9.3
SBT 9.2 9.45
PNB 8.45 9.15
IOB 9.15 9.5


Also with the reduction in the MCLR rates will make home loans cheaper for the next one year’s period. This rate of interest is locked for the one year’s period that is availing new home loan. Plus older loans or existing loan borrowers will also be benefited with the new rates as all loans are linked to 12 months lock period. This initiative has helped banks to have alternates like parking funds in government where the return is lesser than 7%.

This has also helped those who are looking to buy new house, house renovation and small enterprises due to slowdown in the demonetization. The impact of this will be seen on the FY18 first quarter in the economy. This move also communicates that there is lot of promotions and benefits offered for small enterprises. Banks have been asked to focus on the facilities offered to the poor, middle class and lower middle class sector by Prime Minister Narendra Modi. This is also helped banks and other officials to think from “public interest’ perspective.

By cutting 90 basis points on the lending rates, the biggest lender in India- State Bank of India a great difference will be impacted on the real estate sector of India. People are encouraged to take home loans that are affordable and have bought some positive reasons to be happy during this New Year.

There is one year bench mark on home loans and car loans. Since 20111 this is the lowest rate at which SBI has offered loans. In total SBI has cut its benchmark by 200 points on the lending rates ever since 2015 January.

Post the reduction on the MCLR rates, floating home loan interest rates has fallen to 8.6% for women borrowers and 8.65% for others upto the loan amount limit 75 lakhs. Thus old borrowers will get benefited from this once their one-year lock period is complete and new borrowers can start enjoying this benefit right away. And if the loan amount is above 75 Lakhs then the rate of interest will be 8.65% for women borrowers and 8.7% for others.

If the interest rates on loan are of fixed type then the rate of interest will be 8.5% for women and 8.55% for others.  As per this scheme, the interest rate will be fixed for the first two years of availing loan and later it will be converted to floating rate of interest. The Union Bank of India and Punjab National bank has cut its rate of interest by 90 basis points and the MCLR rates by 90 and 70 basis points respectively.

This move has encouraged private banks to slash their interest rates on home loans and car loans. As a contribution to this Kotak Mahindra has reduced the rate of interest by 45 basis points. The one year maturity on MCLR will now stand at 9% as compared to 9.2%. As a welcome note Shaktikanta Das, the Economic Affairs Secretary said” “Trend of interest rate reduction follows demonetization. Banks have substantial quantum of low cost funds now.”