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Home Loans, Flights To Pinch More, Interests To Go Up, Banks Mull Variable Rates

By ugesh sarkar, Section Real Estate
Posted on Thu Jun 26, 2008 at 03:28:51 AM EST

If you have purchased a home with a bank loan, get ready to cough up a little more. Banks may hike the interest rate on home loans by only 0.5-1%. That translates to an extra monthly payout of Rs 65-85 for every Rs 1 lakh you have borrowed -- and about 1,000 a month more on EMI for a loan of Rs 15 lakh.

At present, homes loans of various banks range from 11.5% to 12%

Banking sources have also hinted at a variable interest band with loans of lower amount attracting interest at the lower level and that of higher amount at the upper end of the spectrum. For instance, those who purchase an apartment of Rs 20 lakh may have to pay 0.5% more than the current rate. But if someone takes a loan of Rs 50 lakh, the interest charged will be 1% higher than the going rate.

Nearly all banks that TOI spoke to on Wednesday conceded that they were contemplating a hike in home loan interest. "With the RBI in-creasing key lending rate (repo rate) and cash-reserve ratio (CRR) by 50 basis points, banks will have to hike the prime lending rate (PLR) for home loans," said UCO Bank CMD SK Goel. UCO, like most other banks, will take a call on Friday.

Following the RBI's move, the top brass of most banks were huddled in day-long meetings, debating on whether to hike the home loan interest rate by a marginal 0.5% or a slightly steeper 1%.

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The country's largest private-sector lender ICICI Bank said the hike announced by RBI is a clear indication that interest rates would go up. "We will continue to review the situation on a daily basis before taking any decision," ICICI Bank joint managing director Chanda Kochhar said.

While banks have to hike interest on home loans, most are reluctant as firming of interest over the past three years has led to a decline in loan offtake. Three years ago, interest on home loans had dipped to 8%.

Explaining the variable interest band, bankers said that by keeping interest rates on smaller loans lower, banks would not put off genuine home buyers. At the same time, the rationale is that those purchasing real estate for investment purposes can afford to pay a little more.

Current market trends suggest that over 60% people buy home for the purpose of investment while the remaining 40% for residential use. While this is true nationally, the ratio is 70:30 in favour of first time home buyers in Kolkata.

City-based United Bank of India CMD PK Gupta said the bank is likely to take the final call on the possible rate hike in two-three days.

Source: Sobia Khan From Times News Network 26/Jun/2008

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