State Bank Of India Launches Repo Rate-Linked Home Loan Product From July 1


New Delhi: The country’s largest lender, State Bank of India (SBI), has launched repo rate-linked home loan product effective July 1. So far, all new floating rate home loans were linked to marginal cost of fund based lending rate (MCLR) since August 2016. From July 1, you will have the option to choose between MCLR-linked home loan rate and repo rate-linked home loan rate. “Customers coming to us for floating rate home loans will be offered both options—MCLR-linked home loans as well as repo rate-linked home loans,” said PK Gupta, managing director, SBI. If you opt for the repo rate-linked home loan, you will see a direct impact whenever the repo rate changes. Here is how the product works and what it means for you:

To begin with, let’s first understand the policy rate. Repo rate or the repurchase rate is the interest rate at which the central bank lends short-term money to commercial banks. When there is a cut in the repo rate, the banks get money at a cheaper rate. This should mean that banks will pass on the benefit of cheaper money to the home loan consumers. However, transmission of rate cut continued to remain slow as banks’ cost of funds also came into play while calculating loan rate. To bridge that gap, SBI launched repo rate-linked home loan. However, it is not directly linked to the repo rate number. The loan is linked to repo-linked lending rate (RLLR). “RLLR is 2.25% over repo rate. So right now repo rate in 5.75% and hence RLLR is 8%,” said Gupta. There is a spread of 40 basis points (bps) and 55 bps above the RLLR. So effectively, your home loan rate for amount up to ₹75 lakh will be 8.40%-8.55%. Currently, home loan linked to MCLR is 8.55% to 9.10%. To be eligible to take a repo rate-linked home loan, you need to have a minimum annual income of ₹6 lakh. Also, in case of repo rate-linked home loan, you have to repay a minimum 3% of the principal loan amount every year in equated monthly instalments. The maximum loan tenor is 33 years over and above maximum moratorium permitted of two years for under-construction properties. The total loan tenor cannot exceed 35 years. The bank will charge a premium of 20 bps above applicable interest rate if the loan-to-value is greater than 80%.

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