Home loan rates expected to fall before budget

There can be fall in the Home loan interest rates in the weeks leading to the budget.

Last week HDFC reduced its interest rate by 25 basis points, following on the same lines ICICI Bank and other public sector banks are also planning of reducing their interest rates by 25 to 50 basis points. According to ICICI bank sources cut in the interest rate is expected in a couple of weeks.

“We are evaluating the interest rate scenario and likely to take a final decision shortly,” a source in the bank said. “Given the global trend, there is case of softening of the interest rate. However, much depends upon the inflation, which is still at around 4 per cent with upward bias.”

Though, bankers have doubts about that the reduction in the interest rate may increase the home loan demand.

Since January 2006, there has been an increase by 4 percent in the interest rate and the equated monthly installment (EMI) has increased by Rs 250 per lakh for 20-year loan. A reduction of 50 basis points will definitely have an effect on EMI and would reduce by around Rs 34 for a 20-year loan.

Bankers said the current decline in the home loan disbursement is primarily because of the sharp rise in real estate prices, as many borrowers are finding it difficult to divide out such huge EMIs.

Union Bank of India Chairman MV Nair said there has been reduction on deposit rates and lending rates.

The Bank of Maharashtra is thinking of reducing lending rates in some segments next week. “We might effect an interest rate cut in the range of 0.25-0.50 per cent,” said bank chairman MD Mallya.