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Aug 29
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The Benefit of HDFC Reduced Lending Rates of 10 bps for Home Loans Borrowers

The fourth time cut in the repo rate by the RBI was a big surprise for the economy. There are several reasons behind this unexpected step taken by the MPC. The reduction in the repo rate is a direct loss of income to investors dependent on interest as a source of income. On the other hand, it will prove to be of great benefit for the loan borrowers in the country. Some banks have considered passing the benefit of reduced repo rate to the existing borrowers also.

As one of India’s most established brands, HDFC bank on Wednesday announced a reduction in the retail loan pricing by 10 basis points across the loan applications. This decision by the mortgage major, HDFC bank is going to be effective since Thursday and is considered to be a decision in favour of the borrowers and the loan seekers. With the reduction in the interest rate, home loans in India became an easy prospect since the loan seekers will have to pay less EMI and the burden will lessen on them.

The following are the important points that will come into force since Thursday (07.08.2019):

·     For people applying loans up to 30 lakhs, the lending rate is 8.60%.

·     For women borrowers up to 30 lakhs, the lending rate is 8.55%.

·     This reduction in the lending rate is applicable for existing borrowers and new customer of loans as well.

·     For women applying for loans for above 30 lakhs and up to 75 lakhs, the lending rate has been decreased from 8.85% to 8.80%.

·     For borrowers above 75 lakhs, the prices have been reduced from 8.90% to 8.85%.

This comes in the wake of the decrease in the lending rate by 5 basis points by the State Bank earlier this month. The State Bank reduced the lending rates to 8.40% from 8.45 percent for one year. The decrease in the lending rates comes after the RBI lowered the rates by a cumulative 75 basis points to 5.75% in three successive steps since February.

They also instructed the banks to pass on the benefits to the end-customers as they have lowered their lending rates only by 21bps since June. However, HDFC is not the first bank of the country to lower its lending rates; the same has been followed by banks like the Bank of Maharashtra, Corporate Bank, and Oriental Bank of Commerce and IDBI Bank who have reduced their lending rates since June.

Even Union Bank of India lowered its fund-based lending rate up to 20 basis points on Tuesday. This is said to be the lowest interest rate home loan in India since the decision made by the RBI is mandatory to be followed by all the banks in the country.

How is this going to affect the EMIs of the existing borrowers?

  • With loans that are associated with the MCLR rates: with the reduced rate of the MCLR, the EMI burden will lessen on the existing borrowers. However, the decrease in the interest rate will only benefit you when the reset date of the loan arrives.
  • This reset period comes in six months or one year and your future EMIs will be calculated based on the prevailing interest rates.
  • With the loans associated with the base rate: If your home loan is linked to the BPLR or the base rate, then you can think about switching your home loans to the MCLR based regime.
  • The MCLR offers you with better and transparent services in the transmission of the policy rates as compared to the base rate and the BPLR based interest rates.

What is going to be the effect of reduced MCLR for new borrowers?

If you are going to apply for a home loan, then you can go with the MCLR regime or you can wait until the external benchmark regime for the home loans kick in. Not only this, but the new borrowers can also consider reaping benefits from the Pradhan Mantri Awas Yojna (PMAY).

PMAY allows taking a subsidy based on the credit card until the Prime Minister program for ‘Housing for All’. However, certain eligibility criteria need to be fulfilled to apply for a housing loan under the PMAY scheme. SBI is also expected to allow the benefit of reduced repo rate to its existing loan borrowers across its branches in the nation.

Hence, HDFC reduced lending rates of 10 bps is like a big gift this monsoon season for home loans and other loan borrowers.

If buying a home is in your mind, it is the right time to go for it. You can apply home loans in India online in just a few clicks. You can take the benefit of speedy processing, minimum documentation, and take the limitless advantage of the reduced repo rate resulting in the lower rate of interest applicable to all the fresh loans.

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