Depositors have been upbeat, thanks to the notable rise in deposit rates over the past year. But if you are a borrower, the sure but steady increase in home loan rates by banks since the beginning of this year, has probably irked you. The RBI, in a surprise move this month, held its policy rate. Does this give you a breather as a borrower?

Sadly, lending rates are only set to move up. If you are an existing borrower, review your rates to ensure that you are not stuck with an expensive deal. If you are a new borrower waiting on the sidelines for lending rates to cool off, it’s time to get on the bandwagon and shop for deals. Home loan rates are likely to inch up further in the coming months, tightening your purse strings.

New borrowers

Floating home-loan rates are benchmarked against MCLR — the marginal cost of funds-based lending rate. Banks add a spread to the MCLR to arrive at the loan rate.

So which banks offer a good deal now?

For salaried borrowers looking for loans in the ₹30-75-lakh bucket, Bank of Baroda offers home loans at 8.55 per cent effective interest. The bank links the rate on your home loan to your credit score. If you have a high credit score, you are eligible to get home loans at 8.55 per cent. Indian Bank, Karnataka Bank, Central Bank of India (8.6 per cent), United Bank of India and Dena Bank (8.65 per cent) are a few other banks that offer among the best deals.

The home loan rates at other leading banks, such as ICICI Bank (9.1 per cent), SBI (8.9 per cent) and Punjab National Bank (8.7 per cent), are slightly higher. Currently, banks appear to be offering better deals than housing finance companies (HFCs), as far as interest rates go.

Given that lending rates will continue to move up, you should go for loans that offer cheaper rates.

There is another aspect to consider. Under MCLR-based pricing, lending rates are reset only at intervals corresponding to the tenure of the MCLR. Hence, if your home loan is benchmarked against the one-year MCLR, rates will be reset once every year.

While most home loans are benchmarked against the one-year MCLR, a few are pegged against the six month-MCLR. This implies more frequent revision in rates.

If you love predictability, fixed-rate home loans may appeal to you. So, should you lock into rates now by opting for fixed-rate loans? Not quite.

Fixed or floating?

One, since home loan is a long-tenure product, locking into fixed rates right now will mean losing out on a possible downtrend in rates at a later point in time. Two, pure fixed-rate schemes charge too high a premium for their predictability. Fixed home-loan rates are as much as over 3 percentage points higher than floating home-loan rates. Indian Bank and PNB (0.5 per cent higher than floating), however, offer cheaper fixed rates — 9.6 per cent and 9.2 per cent, respectively. These are still 50-100 bps higher than the banks’ floating rates.

Banks and HFCs also offer dual rate schemes, wherein rates are fixed for one or two years, and then get converted into floating rates. Consider these only if the rates are comparable with those offered under the floating-rate option.

Present borrowers

If you are an existing borrower, and have opted for a home loan with a higher interest rate, you can move over to a cheaper home loan.

But first do a cost-benefit analysis. Moving within the same bank, will involve conversion charges. If you are looking to switch to another bank, the new bank will charge a processing fee (waived by a few).

Above all, make the shift only if your interest savings are substantial and the remaining loan tenure is long.

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