New lending rate calculation makes home loan cheaper

From April 1^st onwards, home loans are going to be cheaper. As part of the new rules announced by RBI, banks across the country will have to calculate their lending rate as per the marginal cost of funds. The country’s biggest lender State Bank of India has revised its home loan rate to 9.4%. This will see EMIs of customers falling down by Rs.300 for those availing Rs.50 lakh loan for 15 year.

Under the new formula, the banks will have to regularly calculate their cost of funds. If there is any change, the bank has to pass on the same to their borrowers by revising their existing benchmark.

Following suit, private lender ICICI Bank has also announced a one-year MCLR of 9.2% without announcing the mark-up on which they will provide the loans.  The interest rates on deposits above Rs.1 crore at ICICI Bank have been reduced by 55 basis points

As against base rate of 9.3%, HDFC Bank has also announced a one-year MCLR of 9.2%. However for HDFC Bank, since home loans are disbursed by its parents company HDFC, the cost of loans will be determined by prime lending rate (PLR).

Talking about this revised formula, Rajnish Kumar, MD, SBI says “SBI is the market leader in home loans with a portfolio of over Rs 1.9 lakh crore. This year, we have seen a year-on-year growth of 18% in home loans and we expect this growth to continue.” SBI is also revising the rates for other loans such as personal and auto making it more competitive. The existing borrowers can also switch to the new rates by paying a nominal fee.

Previously, the base rate was calculated as per average cost of funds. However, under MCLR formula, the rates will be revised every month as cost of new deposit changes. Although once a loan is availed, the rate of interest will be reset only after a year.

New borrowers will have a different situation. A person, if he avails loans on April 1^st, 2016 he will get loans at prevailing MCLR but for another borrower who takes a loan next month, the rates can be lower if the cost of fund declines. If the cost of funds changes every month, the bank will have 12 different sets of MCLR.

RBI, in its efforts to pass on the benefits of rate cuts to customers have asked all banks prepare a range of lending rates with varying maturities.

Tips to get a good home loan

You might be dreading the task of taking a loan if you are planning to buy a house for the first time. Worry not! There are a large number of people like you who are also planning to take a home loan; therefore we will give some pointers that can help you buy your home sweet home in a stress free manner.

Searching your options

If you have decided on the house to buy, then you can proceed with your research. For that, you can look for the variety of options that are available in the market in terms of home loans. Rather than placing blind faith on an agent, you can do your own research by keeping an eye on your future. For more information, you can also discuss with respective banks executive.

EMI Calculation

You can calculate your EMI (Equated Monthly Installments) based on the remaining amount from your monthly income after all expenditures. The remaining amount that you have as spare can be the basis for calculating your EMI. However, it would also be advisable to talk to a professional executive to get a second opinion.

Haggle

Try to haggle for some discount by negotiating with your banker as this could help you few thousands. Despite the ROI (Rate of Interest) being fixed by financial authorities, there is always room for some bargaining.

Credit History

While you might think that you are ready to take home loan but the same feeling might not be shared by your bank. To avoid this, you can keep a record of all your previous credit card payments as that acts as proof of you paying your debts on time. You could bargain to have a lesser ROI with the banks if you have a good CIBIL score.

Documents scrutiny

Read all the offer documents carefully before signing on the dotted line as there might be few clauses that can be forgotten. Don’t just place blind faith on the agent and sign. Scrutinize them before signing.