While trying to figure out a good home loan product for a client, I stumbled upon these revised interest rates on SBI home loan website.
You can read the SBI campaign offer document here. There are a few points that stand out in this interest rate chart.
#1 SBI Has Reduced Home Loan Interest Rate by about 45 to 55 Bps
This is a positive surprise given that the SBI uses RBI Repo rate as the external benchmark and RBI has been increasing interest repo rate since May 2022.
Thus, reduction in the home loan interest is the last thing you would expect. If you notice, the bank has reduced the home loan interest by reducing the spread. SBI can’t tinker with the external benchmark. Can only play around with the spread. For instance, in the first row, the loan rate has dropped from EBR + 0% to EBR – 0.45%.
This is applicable only to new home loan borrowers. The old borrowers shall continue to pay (Benchmark + Spread) as contracted while signing for the loan. Only new Borrowers get the benefit of a lower spread. The interesting part is that the spread is constant during the tenure of the loan. Hence, this is a big long-term benefit.
A home loan of Rs 50 lacs at 9.15% p.a. for 20 years would have an EMI of Rs 45,469. At 8.7% p.a. interest rate, the EMI falls to Rs 44,026. i.e., Rs 1,443 per month. Assuming the interest rate remains constant for the loan tenure, this translates to saving of Rs 3.46 lacs. This is just good luck.
Are There Any Conditions?
This is a limited period offer (or so it seems). You must apply and get the first disbursement done by March 31, 2023.
If you are planning to take a home loan, this could be a good time to approach banks. You might just be able to lock-in a lower spread. Yes, the loan interest rate will still change with the change in repo rate. However, a lower spread ensures that you will always pay a lower rate compared to borrowers who locked (or will lock) in a higher spread.
Why Is SBI Doing This?
To get more business. Before the end of the financial year, every bank wants to shore up its loan book and shown loan growth in the portfolio. Nothing wrong with that as long as the move is customer-friendly. And no customer will complain about a low interest rate on their home loans.
By the way, SBI is not the only bank to do it. A quick Google search revealed that the Bank of Maharashtra and Bank of Baroda have also reduced interest rates in March 2023. Home loans is a very competitive market and the banks need to outdo each other to attract customers.
Given the quantum of loan and the long-term nature of the product, a lower interest rate is the best way to attract prospective borrowers. Bank of Baroda has also reduced the processing fee to zero for the home loans until March 31, 2023.
#2 Good Credit Score Reduces Your Home Loan Interest Rate
While this is a very logical development, this was not a common feature about 5-6 years ago. I think Bank of Baroda was the first bank to link home loan interest rate to credit scores.
The special low interest rate offer from SBI is being extended to only those borrowers with CIBIL score of 700 and above. If your CIBIL score is lower, you cannot take advantage of this limited period offer.
Therefore, it is extremely important that you maintain a good credit score. For that, show responsible credit behaviour.
And yes, monitor your credit score and credit report regularly. If your credit score is low because of your credit behaviour, take corrective action. Sometimes, your credit score can suffer because of improper reporting by banks. In such cases, you can raise a dispute with the credit bureau and also escalate with the bank.
It does not even cost you anything to access your credit report regularly. You can download 1 credit report per credit bureau per calendar year completely free of cost. Make use of the facility and keep an eye on your credit score.