State Bank of India, the country’s biggest lender, earlier waived 100% processing fee on home loans under its Monsoon Dhamaka Offer, which ends on August 31, 2021. Typically the lender charges 0.40% of the loan amount as processing fee on home loans. This gives an excellent opportunity to new home loan buyers and for existing home loan borrowers who have availed of home loan at high rates.
Meanwhile, the Reserve Bank of India, on Friday, kept repo rate, the key lending rate to which most of the retail loans are linked, unchanged at 4%. This means home loan rates of lenders will likely remain unchanged for the current quarter.
Experts say for new home buyers this could be the right time to buy a house as there are nearly 15 banks, which are offering home loans at below 7%. SBI Home Loan interest rates start at 6.70%. The actual home loan rate for a borrower will depend on his loan amount, his job profile and credit score among others.
Given the fact that the economy is recovering from the second wave of the Covid-19 pandemic and is yet to be on a strong footing, experts believe, the RBI will continue with its accommodative stance and maintain lower rates for a longer period of time.
So those who have taken their home loans prior to October 1, 2019, may consider making a switch from Marginal Cost of Funds based Lending Rate (MCLR) to Repo Linked Lending Rate (RLLR). Even a 50 basis points reduction in home loan rate with outstanding tenure of more than 15 years will result in significant savings for borrowers. To know how much a borrower will save on switching his existing MCLR-based home loan to a RLLR-based loan let us see the following illustration.
Assume that you took a home loan Rs 40 lakh home loan for 20 years at 8.40% in January 2019 and currently you are paying 7.65% rate on your home loan. If you switch your home loan to any other borrower including SBI, then you can easily get a rate of 7% or less. It means a minimum savings of 65 basis points on home loan rate.
Even if you reduce the home loan tenure to 17 years (as you have already served your home loan for more than two and half years), you will be savings Rs 13,368 on annual EMI assuming you transfer your home loan at 7%.
At 7% rate, if you transfer your outstanding home loan amount of Rs 37.49 lakh to another bank for 17 years, your EMI will come down to Rs 31,478 compared to Rs 32,592 earlier. This will lead to a total savings of Rs 2.27 lakh over the period of 17 years.
