Home loan is quite a favorite topic for many in India. The rates of Home Loans are decided by the Base Rates. RBI has been after banks for a long time to cut the base rates so that it eases the burdens of home loan payers, however, banks were reluctant to lower the base rates.
In the first move, only two banks did not object to RBIs directives, which were United Bank of India and Union Bank. However, considering that these are two smaller and less significant banks in India, their adherence is not going to make much of a difference. Banks increase base rates simply because there is an increase in the Repo rates.
The current news is that banks have bowed before RBI directives and have now announced a cut in the base rate. The Repo rate was cut by 0.5 per cent with HDFC and SBI announcing a base rate cut by 0.15 per cent.
The cut in actual base rate is certainly a pleasant surprise for those paying home loan installments. Although not in equal proportion, however the cut in base rate would benefit both existing as well as new customers. It would directly benefit the existing customers, however, would notionally benefit the new customers.
On the other hand, there are a number of customers who have taken home loans from Housing Finance Companies. As a matter of fact, HFC customers can’t really hope for much change in their spending.
Impact of Base Rate Cut on Existing Customers
Existing home loan customers would be most benefited with cut in base rate. For example, if you are paying more with your SBI home loan, due to cut in the base rate, you would end up paying 0.15% lesser than what you were paying. With this development, we can certainly exclaim that those paying their home loans to ICICI would be the biggest beneficiaries.
If we believe few financial analysts, the timing of cut in base rates is perfect for the banks. The cut has been announced after the first quarter has already started. So the implementation of the rates would start actually from 01st July. This way, home loan customers would be paying as per the old rates during the first three months of this fiscal year.
Impact of Base Rate on New Customers
Not much impact can be seen for the new customers. Banks have all the authority to tweak the markup and thus interest rate for the new customers would not impact much. The current markup is 0.15% and if the markup is increased from 0.15% to 0.25%, it would eat away the cut in the base rate and new customers would still have to pay for their home loans on the previous rates.
Moreover, if banks do not intent to compromise, they can withdraw all the freebees that they would be offering currently like waiver on processing fee, etc. Moreover, those customers whose loans have recently been sanctioned would not benefit much as they should be waiting till 01st July in order to get a little more.
Last but not the least, there would not be much impact on HFC customers too. The point is, if banks do not find anything much profiting and competitive enough, RBI alone can’t make much of the difference. As far as the base rates are concerned, almost all banks have stood together and thus they know how to work around the RBI directives.