The State Bank of India has recently announced that it will be decreasing the loan interest rates by 0.50% - which means that the loans offered by SBI have now become cheaper, and from now it will start around 7.50% per annum.
It is to be noted that before SBI, the interest rates of the loans were also reduced by Union Bank and Punjab National Bank. It is believed that this reduction in the interest rates has been reported after the repo rates were reduced by RBI from 6.00% to 5.50%.
Let us tell you the list of interest rates for home loans by five government banks. The list is as follows -
Union Bank offers interest rates starting at 7.35%
State Bank of India offers interest rates starting at 7.50%
Punjab National Bank offers interest rates starting at 7.50%
Bank of Baroda offers interest rates starting at 7.50%, and
Bank of India offers interest rates starting at 7.85%.
How loan will be impacted by this reduction in interest rate -
Let us assume the loan amount is INR 20 lakh and the time for repayment is 20 years; then the EMI will be reduced to INR 16,112 from INR 16,729, and interest will be INR 18.66 lakh from INR 20.14 lakh, and the repayment amount will be around INR 38.88 lakh.
According to the above calculation, if the interest rate is reduced to 7.50% from 8.00%, then the beneficiary will benefit from around INR 1.48 lakh.
And, if the amount is increased to INR 30 lakh with a repayment time of around 20 years, then the EMI amount will be around INR 24,168 instead of INR 25,093. The interest will be reduced to INR 28 lakh from INR 30.22 lakh, and the repayment amount will be INR 58 lakh, offering a benefit of around INR 2,22 lakh.
It is worth noting that this cut in the interest rate will only benefit people who have linked to the Repo Linked Lending Rate, which is generally abbreviated as RLLR.
To those who are New Home Loan Seekers:
In case you are thinking of a new home loan, it is a good time to do so. Interest rates are being lowered by banks, and this implies that borrowing will be less expensive. As an example, the interest rate on a home loan offered by SBI was earlier 8%, which is likely to reduce to approximately 7.50%.
In the case of Existing Loan Holders:
And even if you already have a floating rate home loan that is tied to the RLLR (Repo Linked Lending Rate), then you will also gain. It is quite possible that your interest rate can go down during your next reset period, resulting in a Low EMI or a smaller loan tenure.
But in case you have a fixed interest rate on your loan, then you will not be bothered by this alteration.
Why Is Interest Rate Decreasing?
The interests on home loans are tied to the RLLR, which is pegged on the repo rate provided by the Reserve Bank of India (RBI). A reduction in the repo rate results in a decrease in RLLR as well, bringing down the interest rates on loans, in general.
The RLLR Method:
Banks apply a flat spread on the repo rate to determine the RLLR. For example, if the repo rate is 5.50 percent and the bank's margin is 2.65 percent, then the RLLR is 8.15 percent. Then, it adds a credit risk premium to RLLR depending on your credit profile. Therefore, an RLLR of 8 percent and a credit risk premium of 0.5 percent will give you a home loan interest rate of 8.5 percent.