Home Loan Interest Rate: Interest rates on home loans above Rs 30 lakh likely to drop | India Business News – Times of India

Interest rates on home loans above Rs 30 lakh will become cheaper, with the Reserve Bank of India (RBI) making it less expensive for banks and finance companies to extend big-ticket home loans.
The biggest reduction is expected in home loans of over Rs 75 lakh. At present, home loan rates are linked to loan size. Rates are lowest for loans up to Rs 30 lakh and rise with the size of the loan.
For example, State Bank of India charges 7% on loan up to Rs 30 lakh and 7.25% on loan between Rs 30 lakh and Rs 75 lakh. The interest rates on loan above Rs 75 lakh is 7.35%. Similarly, Punjab National Bank has kept it at 7.15%, 7.25% and 7.30% to 7.40% in the three slabs of loans. HDFC Limited also charges differential rates of 6.95% on loan up to Rs 30 lakh and 7.05% on above that. Most of the large lenders charge 5 basis points lower where there is a woman borrower involved.

The progressive increase in rates is because of capital requirements that rise with the size of the loan. At present, a bank has to maintain capital only 35% of the prescribed capital for home loans up to Rs 30 lakh. It is 50% where the loan size is between Rs 30 lakh and Rs 75 lakh and 75% for loans over Rs 75 lakh.
Unlike an unsecured personal loan, which requires bank to maintain 100% of the prescribed capital, lenders are allowed to have lower capital for home loans as they are considered safe because of the security. Besides loan size, capital requirements also depend on the loan amount in comparison to the value of the property, which is also called the loan-to-value (LTV). If the homebuyer brings 20% of the property value, as his own contribution, and borrows the remaining 80%, the capital requirement for the bank is less and this gets passed on to the customer in the form of lower rates.

In its credit policy on Friday, the RBI said that henceforth up to March 2022, the capital requirement will depend on only LTV and not on the loan size. “Loans shall attract a risk weight of 35% where LTV is less than or equal to 80%, and risk weight of 50% where LTV is more than 80% but less than or equal to 90%.”
A senior banker said that the interest rates on big-ticket size home loans are likely to align with the lowest home loan rates, which are currently at around 7%. Capital-starved public sector banks, in particular, would be keen to extend big-ticket loans as the cost of servicing them is lower in comparison to small size loans.
Watch RBI makes home loans above Rs 75 lakh cheaper