Home Loan Rates to remain wishful till 2017 & Beyond !

Banks 455 views

Home Loan Seekers You have a reason to smile as the home loan rates are set to fall and remain that way till 2017 and even beyond. With bank deposits surpassing the level of Rs. 5 lakh crore mark by 18th November in the wake of cash-flush resulting from demonetization, speculations are doing the rounds for a slew of rate cuts by the Reserve Bank of India (RBI) throughout 2017, starting from the next meet in December 2016. Given the rapid influx of deposits that are expected to notch even higher in the days to come, a more than 100 basis point repo rate cut is definitely on the cards, feel experts. This will clear the decks for cheaper home loans for new as well as existing customers till the end of 2017. In view of the development, home loan rates would keep on softening. Days before the demonetization of Rs. 500 and Rs. 1,000 notes, lenders like SBI, ICICI Bank, HDFC Bank and few others cut their lending rates. And now when the demonetization is bringing in a flurry of deposits in the banks, a happy & affordable home loan await you at your doorstep and continue to be so till 2017 or even further.

Why Will Home Loan Rates Fall?

When the money goes out of the market and gets deposited in the banking system, lenders have a lot on their hands to lend. In the case of excess cash inflow in banks, the RBI invariably cuts repo rate, the rate at which the central bank lends to commercial banks. This leads to a reduction in the borrowing costs of the latter and the passage of lower interest rates on home loans to the customers. However, the benefit of lower lending rates applies to individuals whose loans are on floating rate and not the ones on a fixed rate regime. Now when deposits are growing rapidly in the banks, expect a flurry of home loan rate cuts by the lenders in the times to come.

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Axis Bank Leads in Home Loan Rate Cut, Others to Follow the Suit

Post-demonetization, Axis Bank is the first lender to have reduced the home loan interest rates by slashing the marginal cost of lending rate (MCLR). The interest rate on bank’s home loan is now reduced to 9.15%-9.25% from 9.40%-9.45% p.a. earlier. The bank has not waited for the RBI call on repo rate before lowering the home loan rates. And on the looks of it, it is just a matter of time before other banks start reducing the rates, making the list of cheaper home loan lenders a long one to choose from. If the banks do not cut lending rates before the RBI meet, they will most likely to execute it post the event.

SBI Chairman Arundhati Bhattacharya has categorically stated on the impending reduction in the lending rate due to the surge in deposits. She said, “all rates will fall. “The bank has seen a huge inflow of deposits but demand for credit has slowed down. Therefore, lending rates too will fall but after a gap.”

How Will Home Loan Rates Stack Up Till 2017?

The RBI cut repo rate by 25 basis points (bps) to 6.25% in its previous monetary policy meet held in October 2016. Post the RBI rate cut, top banks like SBI, ICICI Bank and HDFC Bank lowered their home loan rates by 0.15%. For example- If the RBI will cut repo rate by 100 bps by the end of 2017 and the banks follow the same trend of the rate cut, then what will be the interest rate by the time we wrap up the coming year?

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Looking at the trend, it won’t be wrong to say that the banks could lower the lending rate by 60 bps in view of 100 bps cut in repo rate by the RBI. If that will be the case, then you can glance through the table to find the home loan rates of 2017 and compare with the existing ones to determine the difference.

BanksExisting Floating Home Loan Interest RatesEstimated Floating Home Loan Interest Rates by 2017Existing Per Lakh EMIEstimated Per Lakh EMI by 2017
SBI9.10%-9.15% p.a.8.50%-8.55% p.a.Rs. 906-909Rs. 868-871
HDFC Bank9.15%-9.20% p.a.8.55%-8.60% p.a.Rs. 909-913Rs. 871-874
ICICI Bank9.15%-9.20% p.a.8.55%-8.60% p.a.Rs. 909-913Rs. 871-874
Axis Bank9.15%-9.25% p.a.8.55%-8.65% p.a.Rs. 909-916Rs. 871-877
(Assuming a 100% repo rate cut by RBI and 60% cut in lending rate by banks)

From the table, you can clearly see the drastic reduction in per lakh home loan EMI of different banks. If you are already availing a floating rate home loan or planning for the same from the banks stated above, you are likely to receive the benefit of lower EMIs and interest outgo over the lending term.

For example- If you are planning to avail a 20-year home loan of Rs. 20 lakhs from the top banks, then what will be the EMIs, interest outgo and overall payment from your pocket over the loan term? To know the answer, just go through the tables below.

BanksTenureInterest RateEMI Interest OutgoTotal Payment (Principal+Interest)
SBI20 Years9.10%-9.15% p.a.Rs. 18,123-18,188Rs. 23,49,603-23,65,099Rs. 43,49,603-43,65,099
HDFC Bank20 Years9.15%-9.20% p.a.Rs. 18,188-18,253Rs. 23,65,099-23,80,618Rs. 43,65,099-43,80,618
ICICI Bank20 Years9.15%-9.20% p.a.Rs.Rs. 18,188-18,253Rs. 23,65,099-23,80,618Rs. 43,65,099-43,80,618
Axis Bank20 Years9.15%-9.25% p.a.Rs. 18,188-18,317Rs. 23,65,099-23,96,161Rs. 43,65,099-43,96,161
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BanksTenureInterest RateEMI Interest OutgoTotal Payment (Principal+Interest)
SBI20 Years8.50%-8.55% p.a.Rs. 17,356-17,420Rs. 21,65,552-21,80,754Rs. 41,65,552-41,80,754
HDFC Bank20 Years8.55%-8.60% p.a.Rs. 17,420-17,483Rs. 21,80,754-21,95,981Rs. 41,80,754-41,95,981
ICICI Bank20 Years8.55%-8.60% p.a.Rs. 17,420-17,483Rs. 21,80,754-21,95,981Rs. 41,80,754-41,95,981
Axis Bank20 Years8.55%-8.65% p.a.Rs. 17,420-17,547Rs. 21,80,754-22,11,233Rs. 41,80,754-42,11,233

So, you can save upto Rs. 1,84,928 (23,96,161-22,11,233) on the interest payment towards your home loan, if taken from any of the banks mentioned above.

Loan Eligibility to Go Up

Come the fall in EMIs, come the entry of more and more people into the bank’s scheme of things. Yes, you heard it right! The loan eligibility goes up by upto 10% among most home loan seekers when the rates get cut by 100 basis points. The improvement in eligibility means either you can get a higher amount of loan from the banks or you fit perfectly into the eligibility criteria of lenders for a home loan.

All in all, the demonetization has sparked a revolution in the economy and more so in the home loan segment. So, if you have selected your dream home, this is the time to cash in and enjoy a cheaper loan journey to give your pocket the much-needed relief.