Reserve bank’s new action of increasing the repo rates two times by half percentage will adversely affect the new housing loanees. Earlier, the decreasing interest rates were a great help for persons who planned to fulfill their dream of having a house by taking housing loans, but now, as the interest rates have started to rise up, banking customers are in a dilemma of taking loans by giving more amount as monthly premium.
The Reserve repo rate was increased in the financial policy review meetings held on June & August by half percent each. The price hike was unexpected. Since the price was increased in June, naturally no one expected another hike in August. Repo rate was increased to 6.5% which was 6% in three months.
Many banks have increased their interest rate following the Reserve bank’s action. Housing loan interest rates were increased by 0.20% in August alone. The interest rates for most of the banks were increased up to 0.40% within the past six months.
At the same time, the interest hike will only affect new loanees now. For those who have taken loans earlier, the interest rate will only be effective from the next financial year.
Banks are following the Marginal Cost of Fund Based Lending Rates (MCFBLR) criteria to decide interest rates. Along with the MCLR criteria, the loan cost will be decided only after considering the spread percentage implemented by the bank. According to this, the interest rate will be stable for a fixed time period. The interest rate on loans taken back in April will be the same until next March. So this rate increase of banks will not affect such loans. The current rate is available from 1st of April 2018. At the same time, current rates will be applicable for new customers.
To avoid the burden of interest rate hike new loanees should try to utilize the Credit-Linked Subsidy Scheme (CLSS). For persons who have an annual income between Rs 4 lakh to Rs 12 lakh are eligible for 4% subsidy and it is available for loans up to Rs 9 lakh. If a loan is taken now with 9% interest rate, then for loans up to Rs 9 lakh only 5% interest shall be paid.
For persons who have annual income up to Rs. 18 lakh is eligible for 3% subsidy and this subsidy is available for loans up to Rs 12 lakh. If a loan is taken now with 9% interest rate, then for loans up to Rs 12 lakh only 6% interest shall be paid.
The interest rate of housing loans may differ according to the credit score. Some banks have adopted a method to decide loan interest according to the person’s credit score.