Some banks and financing companies have reduced home loan rates in March. State Bank of India (SBI) slashed the minimum interest rates for home loans from 6.80 per cent in February to 6.70 per cent in March. While most banks cut down the starting interest rates by 10 bps, Punjab & Sind Bank lowered its minimum home loan rates by 25 bps to 6.65 per cent in the month. Home loan lenders usually extend such lucrative offers to loan applicants during the fourth quarter to book higher volume of home loans. But now, experts do not expect further rate cuts.
"These rate cuts have been made despite the status quo in their external benchmarks. Hence, it would be difficult to forecast whether there would be further cuts in home loan rates unless there is cut in the repo rate or other external benchmark rates," says Ratan Chaudhary - Head of Home Loans, Paisabazaar.com.
All retail loans are linked to the external benchmark -- repo-linked rate. When a bank reduces its external benchmark rate, customers availing home loan, mortgage loan, car loan, education loan, personal loan and all other retail loan products can avail of this benefit.
For instance, the country's third largest public sector bank, Bank of Baroda has reduced Baroda Repo Linked Lending Rate (BRLLR) from 6.85 per cent earlier to 6.75 per cent w.e.f from March 15, 2021. With this revision in the bank's external benchmark rate, the bank's home loan interest rate, car loan, personal loan and education loan have become cheaper by at least 10 bps.
However, prospective loan borrowers should not base their borrowing decision on the prevailing interest rate regime. "Most retail loans are floating rate loans and there can be multiple reversals in the interest rate regime during the loan tenure, especially in case of home loans and other big ticket loans having long tenures," says Ratan Chaudhary.
Instead, loan applicants should widen their search for loans, opt for the best offer available on their credit profiles and try to make prepayments whenever they can, to reduce their overall interest cost, advise Chaudhary in best interest of the borrowers.
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