lowest Interest Rates home loan: Here are 10 banks offering lowest home loan interest rates


With effect from October 1, 2019, the Reserve Bank of India (RBI) has instructed all scheduled commercial banks (apart from regional rural banks), local area banks, and small financing banks to link the interest rates on all retail loans they offer, including home loans to an external benchmark like the repo rate.

In order to comply with this rule, the majority of commercial banks have chosen to link their floating rate loans to the RBI’s repo rate as the external benchmark. Repo rate linked lending rate, or RLLR, is the name for interest rates that are connected to the repo rate. Repo rate plus bank spread or margin makes up the RLLR. According to the RBI, banks are permitted to charge borrowers a spread, margin, and risk premium in addition to the external benchmark rate.

Note that the RBI may revise the repo rate every two months. The spread that a specific bank charges is the same for all borrowers, but the risk premium varies from person to person. For instance, it is frequently observed that banks charge self-employed borrowers a larger risk premium than they do salaried borrowers.

These 10 banks offering house loans with the lowest interest rates.

Salaried home loan interest rate

BANK NAMERLLRMinimum interest rate %Maximum interest rate %
Punjab National Bank7.506.808.05
Bank of India7.256.908.60
Axis Bank7.007.007.30
Canara Bank7.307.059.25
Indian Overseas Bank6.857.057.30
Karur Vysya Bank7.457.159.35
Bank of Maharashtra7.707.308.70
Union Bank of India7.707.409.10
Punjab & Sind Bank7.507.408.25
Indian Bank7.707.408.15

All data sourced from Economic Times Intelligence Group (ETIG)
Data as on June 23, 2022

Self employed home loan interest rate

BANK NAMERLLRMinimum interest rate %
Maximum interest rate %
Punjab National Bank7.507.008.15
Bank of India7.256.908.75
Axis Bank7.007.057.35
Indian Overseas Bank6.857.057.30
Canara Bank7.307.109.30
Karur Vysya Bank7.457.159.35
Union Bank of India7.707.409.10
UCO Bank7.807.407.60
Bank of Baroda7.457.458.80
Bank of Maharashtra7.707.559.20

All data sourced from Economic Times Intelligence Group (ETIG)
Data as on June 23, 2022

When can borrowers’ EMI change?
According to the RBI circular, banks must at least every three months reset the house loan interest rates tied to the external benchmark. As a result, any change in the external benchmark rate would need to be legally communicated to the consumer within three months of the change.

Your risk rating is another factor that could influence the interest rate the bank charges you on a loan. Some banks employ internal risk assessment teams to rank each customer’s level of risk. The credit score reports produced by credit bureaus are also used by some banks. As a result, having a strong credit score is crucial if you want the bank to charge you a lesser risk premium when you apply for a loan.

Additionally, the interest rate paid on the loan you took would fluctuate if there was a change in the spread, which is the margin the bank charges over and above the external benchmark rate.

Important FAQs to note on home loan as per ICICI Bank.
1. What is Policy Repo Rate?
“Repo Rate“ or “Policy Repo Rate” means the rate of interest published by RBI on the RBI website from time to time as Repo Rate or Policy Repo Rate.

2. How will the benchmark reset impact the current Rate of Interest (ROI) in case the Repo rate increases or decreases?
On the reset date, if the applicable Repo rate has increased, the effective ROI of the loan account will increase which in turn will impact the EMI/tenure of the loan. In case of decrease in Repo Rate, the ROI will decrease which in turn will impact the tenure of the loan.

Illustration: Consider a scenario where first disbursement of the loan is done on Oct 15, 2019 under RBI Repo linked benchmark rate, with the RBI Repo Rate being 5.15% per annum (as on Oct 14, 2019) with a spread/margin of 400 basis points (bps). In such a case the effective rate would be 9.15% per annum.
In the above scenario, the effective rate of 9.15% per annum would remain constant till the next reset date i.e. Jan 01, 2020. On Jan 01, 2020, the loans would be reset with the applicable RBI Repo rate as on Dec 31, 2019.

3. Is full tenure fixed rate loans linked to external benchmark?
Full term fixed rate loans are not linked to any benchmark. The rate is fixed for the tenure of the loan.

4. What does reset of floating rate loans linked to external benchmark mean?
As per Master Direction – RBI (Interest Rate on Advances) Directions, 2016, floating rate loan means a loan on which interest rate does not remain fixed during the tenure of the loan. Hence, in case of floating interest rate loan, the benchmark rate of the loan gets revised on a pre-defined frequency. As per RBI guidelines, floating interest rate loans linked to external benchmark should reset at least once in three months.

4.What is the minimum part pre-payment amount that I need to pay when I take a home loan?
The minimum part pre-payment amount should be an amount equivalent to 1 EMI.



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