Central Bank of India to announce festive season rebate

State owned lender, Central Bank of India has decided to reduce the interest rates on home loans by up to 25 to 50 basis points. This comes after many public sector banks have announced some sort of bonus for the prospective home loans borrowers.

The bank has also waived off the processing fees on these loans. Home loans above Rs. 30 to 75 lakh would now be available for 10.65%; while loans above 75 lakh would cost 10.90%. The bank is offering loans up to Rs. 30 lakh at bank's base rate(10.50%).

The scheme would be effective from September 1.

PNB not to revise interest rates on retail loan; blames cost of funds

Punjab National Bank has released an official statement that it would not be slashing rates on retail advances until the cost of funds decrease.  Bank's retail loans are majorly comprised of home loans and car loans.

Bank's Chairman and MD Mr. KR Kamath added that the bank had already reduced the rates on housing finance before the RBI announced a 1% cut in statutory liquidity ratio (SLR). PNB's home loans are available at 10.75% for loans upto Rs. 75 lakh and 11% for loans above Rs. 75 lakh.

Mr. Kamath further added that the rate at which bank gives credit is a function of the cost of funds, and if the bank further reduces loan rates, it would not be able to attract more depositors.

Reduction in home loans was started by State Bank of India (SBI) which reduced their interest rates soon after the RBI announced SLR cut, which was followed by Central Bank of India which recently cut its rates. The two banks are offering home loans upto Rs. 30 lakh at 10.25% and 10.5% respectively.

Things to remember when buying new or switching existing home loans

Home loan market is very competitive with banks offering various deals for both new borrowers and existing home loan customers. There are various facets involving home loans and the customer must be careful to consider them while making his/her decision.

For prospective home loan borrowers, the most visible and important factor is the interest rates, in most cases the lower the better. The customer can also be lured by the banks by offering special schemes and loans with lower spread. Spread is the difference between the interest rate and borrower's cost of funds.

For existing borrowers, the decision is more on the opportunity cost of switching the home loan. Removal of prepayment penalty of home loans has resulted in easier choice for the customer. Since the customer just has to compare the interest rates and add the conversion/processing charges and evaluate the better of the options. 

Now there will be HOMES for urban poor

Prime Minister Manmohan Singh, on the eve of Independence Day, announces launch of new housing scheme. Under this scheme, home loans amounting less than Rs. 5 lakh will be given relaxation on interest rates. Also, in this scheme banks will provide all possible household benefits to the borrower in next two years.

While addressing the nation, PM said, “To provide housing for our poor brothers and sisters residing in urban areas of our country we will soon launch the Rajiv Housing Loan Scheme.” He added that in next two years government will achieve the target of an account of each household in banks.

Few years back, only 3 out of 10 homes were able to avail the benefits of bank’s services but now more than half of the rural households avail the benefits. Such schemes would be designed so that the pensions, scholarships, wages etc. can be directly transferred to bank accounts.

Battle for home loans market to get fiercer

With State Bank of India reducing its interest rates on home loans and car loans and National Housing Bank following the suit by reducing the refinance rates by up to 1%, the home loans market will see tough competition in coming times.

Refinance is the rate at which banks charge housing finance companies (HFC) for low income group housing , which form only a small part of bank's housing finance business. The move by the largest bank, and housing regulator is supposed to create a trend amongst HFCs to pep up the home loan market struck by high rates, increasing cost of property.

The recent cut in statutory liquidity ratio (SLR) and 1.25% reduction in cash reserve ratio (CRR) by RBI would create around Rs. 60,000 crore of liquidity in the system, and RBI wants the benefits of this reduction to be reflected in interest rates for benefit of the customers.