When you decide to take a home loan confusion arises in mind which interest rate you should opt for. Most of the time the decision is taken in favor of fixed interest rate as it does not change with the change in the interest rate in the market, while the floating interest rate changes.
But now you can decide for floating interest rates earlier which used to upset your budget because of the increased evaluated monthly installment (EMI).
Soon MCX SX a subsidiary of Multi Commodity Exchange of India Ltd (MCX) operating under the regulatory framework of Securities and Exchange Board of India (SEBI) and Reserve Bank of India (RBI), will be launching a tool in the form of interest rate futures (IRF) which will enable the home loan borrowers to alleviate the risks of interest rate volatility.
However on investing only 2.5 per cent (margin money) of the home loan amount in IRF, the borrower will be able to earn that much money in the futures market which he will loose whenever there is increase in EMIs.
The MCX SX is waiting for the approval from the regulator for the launch of IRF. According to MCX SX officials globally IRFs is having a share of more than 70 per cent in the overall futures market.
It becomes easy for a home loan borrower to evade the risk of interest rate instability after investing in IRF. For example if you take a home loan of Rs 20 lakhs for a period of 15 year and bank charges interest rate of nine per cent, then the EMI calculated will amount to Rs 20,285.
So, if the interest rate increases by one per cent, the EMI will increase to Rs 21,492 which will add a yearly burden of Rs 14,500. Therefore if you invest 2.5 per cent of 20 lakhs i.e., Rs 50,000 in the interest rate futures then it would recompense the loss arise with the increase in the EMI.
This means that you will earn around Rs 14,500 in a year. Thus you will repay your home loan at the interest rate of nine per cent.
Monday, July 27, 2009
Thursday, July 2, 2009
SBI offers two new home loan products
On Tuesday State Bank of India launched new home loan scheme under which it is offering two home loan products. Earlier bank was offering home loans at a fixed rate of 8% for the first year ended.
Under the new scheme bank is offering loans up to Rs30 lakh at fixed rates of 8% for the first year and 9% for the next two years. Moreover customers will get two options in the fourth year under this scheme – a floating rate at 2% below State Bank Advance Rate (SBAR), which is currently at 11.75%, or a fixed rate of 1% below SBAR with a five year re-set. A re-set means new rates will come into effect at the end of the specified period.
However for loans above Rs30 lakh bank will charge interest rate from the fourth year will be either a floating rate at 1% below the existing SBAR or a fixed rate of 0.5% below SBAR with a five year re-set. SBI is having a home loan portfolio of at least Rs56,000 crore.
Previously in December the Indian Banks’ Association (IBA) and member public sector banks had announced home loans, in which loan up to Rs5 lakh was offered at 8.5%, and between Rs5 lakh and Rs20 lakh at 9.25%. Both rates were fixed for five years. But SBI launched its own scheme instead of the five-year fixed rate scheme, offered a lower rate of 8% fixed for only one year.
The IBA scheme has also ended on Tuesday. A senior banker with a large public sector bank said IBA is likely to announce a new home loan scheme within a day or two similar to the scheme introduced in December last year.
On Tuesday LIC (Life Insurance Corporation) Housing Finance also announced a reduction in interest rates for its existing home loan borrowers. According to company statement the floating interest rates for existing customers has been reduced by 50 basis points on EMIs due on 1 July and payable on 1 August. One basis point is one hundredth of a percentage point.
This is the third reduction done by LIC Housing Finance in the calendar year and in the last six months the total reduction has touched 200 basis points.
Previously the company had slashed 1.50% for existing home loan borrowers in two trenches of 75 basis points each in January and April.
Under the new scheme bank is offering loans up to Rs30 lakh at fixed rates of 8% for the first year and 9% for the next two years. Moreover customers will get two options in the fourth year under this scheme – a floating rate at 2% below State Bank Advance Rate (SBAR), which is currently at 11.75%, or a fixed rate of 1% below SBAR with a five year re-set. A re-set means new rates will come into effect at the end of the specified period.
However for loans above Rs30 lakh bank will charge interest rate from the fourth year will be either a floating rate at 1% below the existing SBAR or a fixed rate of 0.5% below SBAR with a five year re-set. SBI is having a home loan portfolio of at least Rs56,000 crore.
Previously in December the Indian Banks’ Association (IBA) and member public sector banks had announced home loans, in which loan up to Rs5 lakh was offered at 8.5%, and between Rs5 lakh and Rs20 lakh at 9.25%. Both rates were fixed for five years. But SBI launched its own scheme instead of the five-year fixed rate scheme, offered a lower rate of 8% fixed for only one year.
The IBA scheme has also ended on Tuesday. A senior banker with a large public sector bank said IBA is likely to announce a new home loan scheme within a day or two similar to the scheme introduced in December last year.
On Tuesday LIC (Life Insurance Corporation) Housing Finance also announced a reduction in interest rates for its existing home loan borrowers. According to company statement the floating interest rates for existing customers has been reduced by 50 basis points on EMIs due on 1 July and payable on 1 August. One basis point is one hundredth of a percentage point.
This is the third reduction done by LIC Housing Finance in the calendar year and in the last six months the total reduction has touched 200 basis points.
Previously the company had slashed 1.50% for existing home loan borrowers in two trenches of 75 basis points each in January and April.
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