On a 15-year loan for Rs 1 crore, an increase of 0.05 percentage point (5 basis points) would lead to an increase in EMIs of Rs 400 each month.
Rates for new borrowers range between 6.70% and 7.15%, depending on credit and loan amount.
An adjustable rate mortgage (ARHL) is a floating or variable rate loan, which means that the interest rate of an ARHL is linked to the reference rate of HDFC, i.e. the RPLR, so any movement of HDFC’s RPLR will result in an equal increase in home loan rates for existing customers.
Last month, SBI and other lenders raised benchmark lending rates, pushing EMIs for existing customers. While SBI increased its MCLR by 10 basis points, effective April 15, Kotak Mahindra Bank, Bank of Baroda and Axis Bank also increased their MCLR by 5 basis points. The MCLR is a reference interest rate, which is the minimum rate at which banks are authorized to lend. Most loans are tied to the one-year MCLR. This implies that personal loans for houses, cars or individuals could increase and will also affect your monthly equivalent payments (EMI).
Banks raised lending rates for the first time in about three years after the Reserve Bank of India’s (RBI) monetary policy committee said on April 8 that it would now focus on phasing out measures accommodating. It also means that the lending rate cut regime, which borrowers have enjoyed since 2019, could soon be coming to an end.
Unlike banks who must compulsorily compare their home loans to the repo rate or RBI treasury bills, housing finance companies must link theirs to the prime rate.
“Now is a good time to understand the benchmark interest rates for home loans. The cheapest home loans today are tied to the repo rate. Repo loans are only provided by banks. Non-bank institutions refer to their prime rate. Bank loans taken out before October 2019 are linked to the MCLR and the base rate. Borrowers should understand the differences between these benchmarks and how they are impacted. As such, the rates should increase in this fiscal year, and borrowers should assess their options, including refinancing against all benchmarks that help reduce their interest,” said Adhil Shetty, CEO of BankBazaar.
“Typically, in a rising rate environment, lenders maintain the EMI and increase the term of the loan to account for the higher interest burden. However, some long-term loans, such as home loans, where increasing the term may not be possible, lenders must also increase EMIs, which will increase the debt service burden for borrowers.” This could mean lower disposable income, which would have a negative impact on consumption and demand. Higher EMIs could also lead to increased delinquencies for lenders,” said Anil Gupta, Vice President and Co-Group Head, ICRA.