SBI Repo Rate Linked Home Loans Review
Recently SBI indicated that it would launch Repo Rate Linked Home Loans w.e.f. 1st July, 2019. Generally we all are cribbing that if there is rate cut by RBI, such benefits are not passed to customers who are either availed loan or who are planning to take home loan. SBI Repo Rate Linked Home Loans work differently compared to current MCLR Home Loans. What are the features of SBI Repo Rate Linked Home Loans? How SBI Repo Rate Linked Home Loans is different from current MCLR Home Loan? Should you really opt for SBI Repo Rate Linked Home Loans?
Features of SBI Repo Rate Linked Home Loans
Here are the key features.
1) This Repo rate linked home loans from SBI is available to individuals whose gross annual income has crossed Rs 6 Lakhs.
2) These home loan repayments needs to be done within 33 years and another 2 years for moratorium of under construction properties
3) These home loans are issued effective from 1st July, 2019
4) These home loan interest rates are linked with RBI Repo Rates. Means, if RBI reduces Repo rate, the home loan interest rates would reduce and if such rate increase, your home loan interest rate would increase.
5) The new home loans are based on Repo linked Lending Rate (RLLR) which is currently at 8%. There would be mark-up of 0.1% to 0.2% for risk profile and other factors.
6) In case your loan value is > 80% of the value of the property, there would be additional interest of 20 basis points i.e. 0.2% over and above the interest rate being charged.
7) These home loan principal repayment should get completed before an individual completes 70 years of age and with a minimum cap of principal repayment of 3% per year.
How does SBI Repo Rate Linked Home Loans Work Exactly?
First let us understand what is Repo Rate and Repo Rate Linked Rate (RLLR).
1) Repo rate is also referred as repurchase rate is the interest rate at which the central bank (In this case RBI) 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. Currently Repo Rate is 5.75%
2) Repo Linked Lending Rate (RLLR) is where bank applies cost of funds. Currently RLLR is 2.25% over and above Repo Rate. Means RLLR rate is 5.75% + 2.25% = 8%
3) SBI Repo Linked Home Loan Rates would work based on RLLR + Risk Factor. Currently the Risk Linked Lending Rate (RLLR) (computed above) is 8%. The risk factor is anywhere between 0.4% to 0.55%. This risk factor would depend on risk profile of the borrower.
4) In simple Terms the home loan rate = 8% + (0.4% or 0.55%) = 8.4% or 8.55%.
5) The variable factor is 8% which keeps changing as and when RBI changes the Repo Rate.
6) In this home loan plan EMI, the principal is intact (i.e. minimum 3% every year) and only interest would vary. E.g. If you have taken Rs 50 Lakhs home loan, the principal amount in EMI would be minimum 3% i.e. Rs 1.5 Lakhs per annum and balance would be interest part. Such EMI would vary based on repo rate changes by RBI which would be quarter on quarter.
How SBI Repo Rate Linked Home Loans different from MCLR Based Home Loans?
Currently SBI is offering floating rate home loans based on Marginal Cost Lending Rate (MCLR). Current MCLR rate is 8%. However the home loans are offered between 8.6% to 9.5% depending on several factors like age, gender, salary, location, loan amount, risk profile etc., The delta of 0.6% to 1.5% is always there. Currently these are not linked with Repo rate. Hence when RBI is reducing the repo rates during their quarterly review, the benefit is not passed on to customer immediately.
Can we convert from current home loans to Repo Rate Linked Home Loans in SBI?
While SBI has not explicitly indicated this, all home loans can be converted from one plan to another plan without any issue.
SBI Repo Rate Linked Home Loans – Should you really opt this?
Lets see what is real benefit to home loan consumers.
1) Repo Rate Linked Home Loans from SBI is welcome move. RBI has been constantly reducing Repo Rates in the last several quarters. However, this benefit is not passed to home loan consumers. If you want to take the benefit from such repo rate cut immediately, you can opt for Repo Rate Linked Home Loans.
2) These home loans are offered between 8.4% to 8.55% instead of current floating rate home loans (MCLR based) which are offered between 8.7% to 9.5%. You would gain between 0.15% to 0.95% interest rates.
3) If you have good credit worthiness, you can get 0.15% less interest rate (8.55% minus 8.4%) on such home loans if you opt for Repo Rate Linked Home Loans from SBI.
4) Though it looks small %age of variance in interest rate, in reality you can save several lakhs of rupees on your EMI.
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SBI Repo Rate Linked Home Loans – Should you really opt this