NEW DELHI: Kotak Mahindra Bank recently reduced its home loan rates from 6.65% to 6.50%, a special rate for a limited period during the festive season -- beginning 10 September and ending 8 November 2021.
The bank claims that this is the most competitive rate in the home loan industry, a claim which cannot be disputed.
Home loan interest rates have fallen below 7% since last year with the Reserve Bank of India (RBI) embarking on massive liquidity infusion measures to support growth and credit uptake.
While these liquidity measures and RBI’s sustained efforts to keep interest rates low may not have helped much in encouraging businesses and individuals to take new loans, they certainly have ensured home loan rates become more attractive.
With Kotak Mahindra Bank reducing the rates to 6.5%, and others like State Bank of India and HDFC offering the lowest rates of 6.7%, it looks like the home loan rates have bottomed out.
There is little chance large home loan players like SBI and HDFC would try to compete with Kotak Mahindra Bank and bring down their rates further.
A banking sector official, on the condition of anonymity, says Kotak’s home loan portfolio is miniscule (compared to large players like HDFC and SBI), and lowering the rates to 6.5% would not affect its balance sheet as much.
“However, large players with high exposure to the home loan market may find it difficult to cut the rates further down,” he says.
Industry players are also of the opinion that Kotak’s 6.5% home loan gamble is a ploy to attract customers.
Once they have acquired enough customers, they can always increase the rates. Kotak Mahindra Bank’s home loan portfolio was Rs 55,623 crore, whereas SBI’s home loan portfolio was Rs 505,473 crore and HDFC’s total retail home loan advances were Rs 3,76,000 crore as on 30 June 2021.
While not all banks and lenders may have the leeway to further reduce the home loan rates, the good news is that they may not increase the rates for another six months or so, given the liquidity in the market and the RBI’s stated policy stance that it would “continue with the accommodative stance as long as necessary to revive and sustain growth on a durable basis…”
"Interest rates are at their all-time low and for the next quarter or two, they should remain around these levels,” Renu Sud Karnad, Managing Director, HDFC Ltd, told the New Indian Express.
Are you still paying in excess of 7% interest on your home loan?
If yes, it is probably time to ask your bank if you are eligible for a downward interest rate revision. Most banks and lenders offer a lower rate to borrowers whose outstanding/new loan amount is up to Rs 30-35 lakh.
Anything in excess of this might attract higher rates – upwards of 7%. For example, State Bank of India offers its cheapest home loan rate of 6.7% on (outstanding) loan amount up to Rs 30 lakh.
ICICI Bank offers 6.75% on outstanding loan amount up to Rs 35 lakh. Some banks, however, offer the same rates on all amounts.
But there are other parameters as well. Salaried individuals get home loans at lower rates than a self-employed.
For example, ICICI Bank offers the lowest rate of 6.9% to self-employed, while salaried individuals can avail at 6.75%.
The most important factor, however, that decides the home loan interest rate is your credit history.
For example, Kotak Mahindra would offer loans to new customers at 6.5% only if their credit score is 800 or more. In case of balance transfer, an individual can avail 6.5% only if his/her credit score is 750 or more.
A credit score tells your creditworthiness and ability to pay debt in future.
Usually, banks take a processing fee to lower your home loan interest rate. This is where you have to check if it is worth paying the fee for lowering the interest rate. If the lower rate being offered is in the range of 0.05-0.20%, you might like to see if it saves more money than the fee that you are paying.
If your lender is not offering you a lower rate, you can transfer your loan to a new bank by closing the existing one. Here also, you have to do a cost-benefit analysis, and decide if it is worth taking the pain to transfer the loan to another bank.
“The question is how much time is left to repay the loan based on the original tenure. A 0.2% lower rate will not save you much if it’s an old loan. Also, you have to pay processing fees and other charges to the new lender. NBFCs still collect the foreclosure charges,” says Pankaj Mathpal, founder and managing director of Optima Money Managers.
A few basis points lower rates though should not be a good enough reason to change your lender. Banking relationships are based on trust and quality of service, which you would not like to trade for a few percentage points.