Home loan rates: These banks are offering home loans below 7% interest rate

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Home loan borrowers have been enjoying multi-year low interest rates for a while now. However, things might change soon as India’s largest lender, State Bank of India (SBI) increased its base rate by 10 basis points (bps) last week. The revised base rate for SBI is 7.55 percent with effect from December 15, 2021. The base rate is the lowest interest rate at which a bank can lend to its customers.

Also read:
SBI base rate hike: Is this the start of the end of low interest rate regime?

So, if you are someone who is looking to buy a house using a home loan, now might be a good time. In fact, there are many banks that are offering loans below 7% interest rate.

For instance, Union Bank of India’s repo-rate linked home loan starts from a minimum of 6.4%. SBI Term Loan starts from 6.65% and HDFC Bank’s home loan starts from 6.95%. Bank of Maharashtra’s is offering an interest rate on home loans that starts from 6.40%. These are the home loan rates for salaried borrowers. The following are some of the banks offering lower interest rates:

Also read:
Here are the interest rates of home loans linked to repo rate

What is repo-rate linked home loan?

Since October 1, 2019, the RBI has mandated banks to link home loan interest rates to an external benchmark. The repo rate has been used as the benchmark for most banks’ home loans. These home loan interest rates will move in lockstep with the external benchmark to which they are connected, such as the repo rate.

RBI has directed banks to link their retail lending interest rates to any of the following external benchmarks:

  • RBI’s repo rate
  • Government of India 3-months Treasury bill yield published by Financial Benchmarks India Pvt. Ltd. (FBIL)
  • Government of India 6-months Treasury bill yield published by FBIL
  • Any other benchmark market interest rate published by the FBIL

Following its bi-monthly monetary policy review meeting on December 8, 2021, the RBI announced its decision to keep rates unchanged. Repo and reverse repo rates are currently at 4% and 3.35 percent, respectively.

The repo linked lending rate, or RLLR, is a lending rate that is tied to the Reserve Bank of India’s repo rate.

How will your EMI change in the new external benchmark linked lending rate regime?

To categorise the borrower on the basis of credit risk, some banks have internal risk assessment teams while others rely on credit scores to grade the risk of each borrower. As per RBI’s circular, if your credit score undergoes substantial changes, the bank can revise the risk premium charged on the home loan.

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