Monday, May 5, 2008

Home loan - to avoid interest rate hikes in the near future, taking a loan from a PSU bank might be a good idea

Fillip to priority lending:

Another important measure that RBI took was to hike the limit for priority-sector home loans from Rs 20 lakh to Rs 30 lakh. Earlier, for loans up to Rs 20 lakh, the risk weightage was 50 per cent, and for all loans above this amount, it was 150 per cent. Now the limit has been hiked to Rs 30 lakh. Because of lower risk weightage, banks offer lower rates on loans of up to Rs 20 lakh (now Rs 30 lakh).

Given the rise in property prices in major cities over the last four-five years, very few people were able to take advantage of these lower rates. With the ceiling being hiked, more people will be able to enjoy the benefits of lower loan rates.

For instance, SBI maintains an interest rate of 10.5 per cent for loans up to Rs 20 lakh and 10.75 per cent for loans above Rs 20 lakh. Now since the risk weightage for loans up to Rs 30 lakh has been reduced, a home loan customer seeking a loan of Rs 30 lakh will see his EMI come down by Rs 505 on account of the 25 basis points differential.

Customers need to understand that private sector banksICICI Bank, HDFC and others—don’t have differential rates on different loan amounts. To take advantage of this recent development, you will have to seek the loan from a public sector bank.
PSU banks may not hike rates

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