In a bid to boost the sluggish housing loan sector, the Indian Banks Association (IBA) Monday announced to slash the rate of interest on new housing loans up to Rs. 5 lakh and in the Rs.5-20 lakh segment.
To fuel the housing sector, IBA has decided to fix the home loan interest rate by 8.5% for up to Rs.5 lakh and 9.25% for Rs. 5 to 20 lakh for the period of 5 to 20 years.
This announcement of IBA came in the wake of Reserve Bank of India (RBI)’s latest announcement of cutting key lending rates by 50 to 100 basis points including Prime Lending Rate (PLR)- the base rate that banks use in pricing commercial loans to their best and most creditworthy customers.
The ongoing global recession and increasing rate of interest has sternly affected the market, so to revitalise the home loan and housing sector RBI has made such favourable announcement.
In view of that, besides fixing the rate of interest, IBA has also announced not to levy any processing fee and providing free insurance coverage to the borrowers which premium would be borne by the lending banks.
Moreover, to make borrowing more attractive IBA has also announced to freeze the rate of interest for the first five years, which means for the first five year, there would be no fluctuation in Equally Monthly Instalments (EMIs) while after the end of freezing period, borrowers could opt the floating or fixed rate of interest which would vary time to time as RBI or government made new announcement.
The margin money for purchasing any property has been fixed to 10% of total property value for up to Rs. 5 lakhs and 15% for Rs. 5-20 lakh rupee debt. It means the buyer of the property would have to pay 10% and 15% of the total value of the property as down payment at initial stage to be eligible for asking loans.
Despite RBI’s announcement, the banks were earlier unwilling to slash the interest rates for loans, but public sector banks like State bank of India (SBI) and Punjab National Bank (PNB) have now taken some steps to reduce the rate on credit and deposit rates.
But, major private sector banks such as ICICI and HDFC which share a large portion of home loans have not made any announcement to cut the interest rate on home loans and reportedly adopting ‘wait and watch’ policy’, sources said.
However, the reduced home loan rates will only be applicable to fresh borrowers as the special government package is to boost the growth and the same time to meet the housing requirements of a common man.
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