16December2008

Cheaper Home Loan
Buying a Home has become cheaper for Low/Middle income group and in smaller towns. All of 28 Public sector Banks in India have decided to lower the interest rates on home loans and loans for small and medium enterprise, however with some conditions.

Under the scheme launched, interest rate on home loans up to Rs 5 lakh, for a maximum period of 20 years, will not exceed 8.5 per cent for the first five years. However, if interest rates changes further then lower of two will be applicable. The margin for this been reduced to 10 per cent, from the current 20-25 per cent. This means that now a buyer can get 90% of home amount as loan.
Similarly interest rate on loans up to Rs 20 lakh for a maximum period of 20 years has been fixed at 9.25 per cent and the margin has been reduced to 15 per cent. Also there will be a free insurance cover for this loan. Pvt. Banks viz. ICICI and HDFC haven't responded to this yet.
More so, this can't be a big relief to realty sector. Hardly anyone takes 5-20 Lakh loans in metros, or even tier B cities. This makes sense for Public Sector Banks whose majority of customers are those asking for 15-20 Lakh Loans, with average of 7-8 Lakh.
Existing customers are not entitled for this scheme. This is because this measures are taken to boost demand for home and help struggling realty sector.

Banks also said they are reducing the interest rate on loans to micro enterprises by 0.5% and small and medium enterprises by 1%. Both existing and new customers will benefit from the move, which comes into immediate effect.