How A Repo Rate Linked Home Loan Scheme Of SBI Will Work?

A piece of news from October 1, 2019, says that SBI’s repo rate linked home loan scheme has been revised. Interest rates for salaried and non-salaried borrowers have marginally increased now. Every year a minimum of 3% of the principal loan amount customer needs to repay as interest. Going by Reserve Bank of India’s (RBI’s) guidelines, loans like (retails loan, floating rate home loan, etc.) had to be linked to external benchmarks like repo rate. After adopting the repo rate as the external benchmark. SBI launched its new revised repo-rate-linked home loan scheme.

What is this revised scheme by SBI?

Loans linked to the marginal cost of funds-based lending rate (MCLR) was only one option to customers earlier, but the repo rate linked loan is another option now. Basically, it is an increase in the spread/margin for new floating rate loans as compared to the previous spread. In case the borrower is in specified situations or the risk is higher, then they will charge additional spread/margin over the mentioned rate, and the effective benchmark rate will be repo rate plus 2.65%.

To be eligible for the loan, you should have a minimum income of 6 lakh p.a. 33 years is the tenure of the loan, and in the case of under-construction property, it is 33 years (2 years is maximum moratorium period).

Before October, new borrowers could avail home loans at rates starting from 8.05 percent from SBI, but now they charge 256 bps above RBI’s repo rate, currently, which is 5.4%. According to this, from October, the external benchmark-based lending rate will be 8.20%. The effective home loan rate for salaried borrowers will change now.

Here are the SBI’s repo-rate-linked home loan interest rate:

Loan amount  Interest rate (%)                   
Above 75 lakhs 8.55    
Rs 75 lakhs  –  Rs 30 lakhs 8.45                        
Up to 30 lakhs                         8.20                        

To non-salaried customer an additional premium of 15 bps will be added, an extra 10 bps will be added if you have low credit score or if LTV (loan-to-value) ratio for a loan up to Rs 30 lakh is between 80 percent and 90 percent and there will be concession of 5 bps on the premium for women.

Every year a minimum of 3% of the principal loan amount customer of this home loan scheme needs to repay as interest.

If you are going for a repo rate linked home loan, then you need to pay additional cost apart from interest charges, a processing fee of 0.35 percent of the loan amount (which is minimum Rs 2000 to max Rs 10000 plus service tax).

 What is good in it?

  • You don’t have to wait for the revised MCLR rate, and it will work upon the repo rate announced by RBI.
               
  • Repo-rate-linked loan schemes are comparatively transparent than those linked to MCLR.
               
  • Borrowers will be benefited from the rate cut from the coming month after RBI’s monetary policy announcement.
               
  • Concession of 5 bps to women
               
  • The one who is already a customer to SBI can switch from MCLR to the       repo-rate-linked loans by giving a one-time charge of 0.25 percent of the loan amount as a processing fee.
               
  • Real savings, additional charges, and operational issues need to be calculated before deciding to switch.

What is not good:

  • The credit score will be taken into consideration, an additional premium        of 10 bps if the credit score is low.
               
  • An additional premium of 10 bps if LTV ratio is greater than 80% (applicable only to loan up to 30 lakhs)
               
  • Need    to be prepared for frequent and volatile changes in EMIs. Be prepared for very high EMIs if there is a hike in repo rates due to recession.
               
  • Eligibility is an annual income of 6 lakhs, and hence targeted ordinance is tier I, tier II and tier III cities.

Conclusion:

If you are prepared or think that you can adapt the big change in EMIs quite frequently, then consider these repo rate linked SBI home loan schemes otherwise decide wisely before concluding anything. In the end, it’s your money, and you will be only responsible if you incur any loss or get any profit. So do proper risk analysis beforehand.

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