Home loan interest rates have fallen below 8 per cent for the first time in 17 years. Following a 25 basis points reduction in interest rate effective from January 1, 2020, State Bank of India is offering home loans up to Rs 30 lakh at an effective interest rate of 7.95 per cent for salaried individuals. The last time home loan interest rates slipped below 8 per cent was in 2003 when it was about 7.75 per cent.
"With this reduction, interest rate for existing home loan customers as well as MSME (micro, small and medium enterprises) borrowers who have availed loans linked to external benchmark based rate would come down by 25 bps," the country's largest lender had said after the rate cut.
State Bank of India (SBI) was the first bank to link its loan products, including home loans, to an external benchmark. The public sector lender had chosen to use Reserve Bank of India's repo rate as the benchmark for their home loans. Loan interest rates linked to repo rate are called repo linked lending rates (RLLR); SBI calls it external benchmark rate (EBR).
Currently the repo rate is 5.15 per cent, whereas SBI has a spread of 2.65 per cent. This takes SBI's EBR for home loans to 7.8 per cent. The bank also charges some premium over and above the EBR depending on the loan amount, profession, gender, down payment and risk profile of the borrower, which increases the effective rate on home loans.
From January 1, 2020, SBI is offering home loans up to Rs 30 lakh to salaried individuals at 7.95 per cent interest. This includes EBR of 7.8 per cent and a premium of 15 basis points (bps). For home loans between Rs 30 lakh to Rs 75 lakh, SBI charges an interest rate of 8.2 per cent after a premium of 40bps. SBI is providing home loans above Rs 75 lakh at an interest of 8.3 per cent, following a premium of 50bps.
Depending on the profile of borrowers, SBI will also charge certain premium on its home loans:
- A premium of 0.15 per cent will be added to the rate for non-salaried borrowers.
- A premium of 0.10 per cent will be added to the rate for loan up to Rs 30 lakh if LTV ratio is more than 80 per cent and less than 90 per cent.
- A premium of 0.10 per cent will be added to the rate for borrowers who fall under Risk Group of 4 to 6.
- For women borrowers, a concession of 0.05 bps will be available.