State Bank Of India (SBI) has modified its repo-rate linked home loan valid from 1st October 2019. The SBI bank was the first to the announced scheme of repo-rate linked home loan in July 2019, followed by other banks. Under the guidelines of Reserve Bank Of India, SBI bank has ratified to set an external benchmark for all the new floating home loan rates, housing associations, auto, and other retail loans for the customers. Earlier, there was only one option to avail floating rate home loans i.e., home loans, which are linked to MCLR (marginal cost lending rates), but now, SBI has introduced for borrowers to take home loan linked to a repo rate.
Let us discuss how SBI repo-rate linked home loan works?
Eligibility- A borrower should have Rs. 6 lakh as an annual income to avail Repo-rate linked home loan scheme from SBI. The tenor of the repo rate home loan is 33 years, and for under-construction projects, the maximum delay period of two years is allowed, so in that case, loan tenor cannot be more than 35 years.
Interest rate- SBI used to charge 265 base points above the Reserve bank of India’s repo rate, which was 5.4% in the past. But from October, it has brought an external benchmark-based lending rate to 8.20%.
For salaried customers, the current home loan rate has changed. The bank will start charging a premium of 15 base points on home loans taken up to 35 lakh with the interest rate of 8.20%. And now, interest on home loan taken between Rs 30 lakh to 75 lakh will be valid at 8.45% after raising a premium of 40 basepoints. Similarly, the loans drawn by salaried borrowers above Rs 75 lakh will gain a premium of 50 base points with an 8.55% interest rate. For non-salaried customers, an additional premium of 15 base points is charged by SBI.
There is an additional cost for the customer availing repo-rate linked home loan, such as processing fee of 0.35% and inclusive of service tax on the amount.
Repayment of Repo-Rate linked home loan- In this scheme, the customer needs to repay the loan with a minimum of 3% of the principal amount into EMIs every year. If anyone takes up the home loan of Rs.50 lakh, they need to pay back Rs1.50 lakh as the principal amount with the cost of interest per year.
SBI has levied a premium of ten base points on the interest rate if the loan-to-value ratio increases more than 80%, which ultimately increases the cost of borrowing the loan. This is pertinent only for the loans taken up to Rs.30 lakh.
The bank also reviews the credit score of the borrowers who avail a repo-rate linked home loan. If the credit score is below 600 then the bank may acknowledge them as a high-risk borrower and charge an additional premium of 10 base points, which further increases the borrowing cost.
Borrowers need to be prepared for the unpredictability in their EMI’s or tenure of the loan. So any changes in the repo rate will be chargeable from day one of the following months. Existing borrowers of the bank have the option to switch from the Marginal Cost Lending Rates (MCLR) linked home loan to the repo-rate linked home loan by remitting a one-time charge of 0.25% of the loan amount. It is advisable to calculate the additional expense, real savings, and operational issues while you decide to switch.