This New Year has a bit to cheer for the home loan borrowers. Prime Minister Narendra Modi announced rebate in Rate of Interest (ROI), for housing loans for the meager and the middle-class, on the New Year eve. The announcement of PM Modi Home Loan Scheme was followed by slashing down of rates by several banks, including the government-run State Bank of India (SBI).
The home loan rates have tumbled down to their lowest level in the last six years after the State Bank of India reduced enforced rate to 8.6% from 9.10%.
SBI and other banks were directed to cut down rates ensuing push from PM Modi to demonstrate benefits of demonetization by sharing record deposits with the poor and middle class.
The decline in lending rates by public sector banks will make the Awas Yojna Scheme, accessible at a little over 4% for people seeking loans of up to Rs 9 lakh. The detailed information of the scheme is yet to be announced.
The reduction implies that new borrowers can take loans at the cheaper rates. Since home loans are linked to one-year Marginal Cost of Funds based Lending Rate (MCLR), the rates will be locked in for 12 months. However, the older loans will also be entitled for the new rates only after their one-year lock-in ends.
People who have availed loans before April 2016 will have to link their EMIs to the earlier benchmark, the base rate. They will have to sign a new contract with the bank (chargeable) to get loans linked to MCLR.
PM Modi Home Loan Scheme is expected to re-balance the prevailing discrepancies by encouraging loans to SMEs. Additionally, the framework has already been established through payment systems and bank accounts.
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