There is good news in store for home loan customers in India and prospective home loan borrowers. For the very first time in a whopping 17 years, the rates of interest on home loans at State Bank of India (SBI)has fallen below the 8% mark. SBI was the first Indian bank to link loan products like home loans to the external benchmark which is the repo rate set by the RBI (Reserve Bank of India).
After a reduction of 25 basis points in rates of interest with effect from 1st January, 2020, SBI is now offering home loans up to Rs. 30 lakh at an interest rate of just 7.95% for salaried customers. It was way back in the year 2003 when home loan interest rates went below 8% to touch 7.75%. SBI has already stated that with this latest reduction, rates of interest for existing borrowers will come down by 25 basis points and this will also benefit MSME (micro, small and medium enterprises) borrowers who are repaying loans linked to the RBI repo rate or external benchmark.
Key information that you should know
SBI was the first Indian bank to tie loan offerings inclusive of home loans, to an external benchmark. It chose the repo rate of the RBI as the home loan benchmark. The rates of interest on loans linked to this repo rate are known as RLLR or repo linked lending rates. SBI is calling it EBR or external benchmark rate. The repo rate is presently at 5.15% and SBI is charging a 2.65% spread over and above this rate. This takes the EBR at SBI for home loans to an attractive 7.8%. A premium is charged over and above the EBR by SBI on the basis of the amount applied for, profession of the borrower, down payment, gender and his/her risk profile. This will increase loan rates slightly.
From 1st January, 2020, SBI is offering home loans up to Rs. 30 lakh at 7.95% for salaried customers inclusive of 7.8% as the EBR and a 15 basis points premium. For home loans between Rs. 30-75 lakh, SBI is charging 8.2% per annum as interest which indicates a 40 basis points premium. SBI is also offering home loans for amounts exceeding Rs. 75 lakh at 8.3% which indicates a premium of 50 basis points. Depending on the borrower profile, a specific premium will be charged for home loans by State Bank of India (SBI). 0.15% will be the premium charged for non-salaried customers and 0.10% extra will be added to the rate for loans up to Rs. 30 lakh in case the loan to value (LTV) ratio exceeds 80% and is lower than 90%. A premium of 0.10% will be charged for borrowers who come under the 4-6 Risk Group. A concession of 0.05 basis points will be available for female borrowers. This will certainly be great news for prospective home loan borrowers and also existing customers who have taken loans linked to the external benchmark. In fact, this decision to lower interest rates below 8% may contribute to increasing demand for real estate in the country as well.