India is witnessing a surge in inflation . Wholesale price inflation has been consistently in double digits for the past few months. Since the job of RBI particularly the monetary policy committee is to tame the inflation it has increased the repo rate.
Increase in repo rate has led to banks increasing their mclr which is leading to increase in interest in EMIs(equated monthly installments ). This means your loans are going to get costlier. the MPC raised the benchmark repo rate to 4.4 per cent in an off-cycle meeting.
Lets have look on what the loans interest rate are going to look like for your banks.
loans offered by HDFC(HOUSING DEVELOPMENT FINANCE CORPORATION) in 2022
For home loans hdfc offers two kinds of loans
1.first is limited offers low home loan interest rates starting from 7.05% per annum.
This rate of interest is applicable to
- Home loans
- Balance transfer loans
- House renovation
- Home extension loans
2. Second is adjustable rate loan known as a floating rate loan as well as a trufixed loan .
Here there are two process that are followed trufixed loans
- interest rate on the home loan remains fixed for a specific tenure (say first two years of the entire loan tenure)
- after which it converts into an adjustable-rate loan.
Process that is followed on a floating rate loan Adjustable Rate Home Loan (ARHL): An Adjustable Rate Home Loan is also known as a floating or a variable rate loan. The interest rate in an ARHL is linked to HDFC’s benchmark rate i.e. Retail Prime
Retail Prime Lending Rate (RPLR). Any movement in HDFC’s RPLR may effectuate a change in the applicable interest rates.
Also one of the important provision is that rates for women customer are 5 basis poin lower in every segment.
Also customer with a credit score of greater than 780 will get loan at 7.05%
loans amount in slabs and rate offered by HDFC in 2022
|HDFC loan amount slab||HDFC loan amount rate|
|Up to 30 lakh||7.15%|
|Above 30-75 lakh||7.40%|
|Above 75 lakh||7.50%|
|For credit score of 780 plus||7.05%|
Credit score(credit score for HDFC bank loan 2022)
What is a Credit Score?
Credit score is a metric or a number that tells whether an individual will be able to repay loan that he has applied for.
Cibil or credit score are generally used for one another
Cibil score is given by the company that transunion cibil limited .
This company collects the credit history that is amount of borrowing that an individual does across the financial systems.
What is retail prime lending rate?
Retail prime lending rate is the rate at which bank will lend to its most creditworthy customers.
So if your are someone who has never delayed your EMI payments or never defaulted on credit card debt you can be one of the most creditworthy customer of the bank.generally for the most creditworthy customers the rate will be certainly low as they are likely to return the loan on time , thus covering the expensed of providing a loan to customer as well as making it profitable.
What are adjustable rate home loans?
These are the loans which are benchmarked against retail prime lending rate. Also the monetary policy adjustement made by the RESERVE BANK OF INDIA in the form of increase or decrease of repo rate shows its effect on these loans.
So as the reserve bank of india increases the repo rate your EMI may get costlier , or if the reserve bank of india decreases the repo rate you might receive some respite in the EMIs
Factors affecting home loans FAQs
Q.1How does interest rate type affect your home loan?
When someone borrows a money from bank there are two kind of systems that are generally followed
1. In fixed interest rate the borrower has fixed percentage of interest rate and hence the anount of payment that has to paid remains the same.
Fixed interest rate are dependent on market fluctuation.
Fixed interest rate tend to become costlier as their less flexibility for the bank for fixed interest type of loans.
2.floating interest rate
floating interest rate depend on an external benchmark and hence it is subject to market fluctuation. Floating interest rate are attached to a base rate that may differ from bank to bank. Hence with a variation in base rate it may differ from bank to bank.
Floating interest rate loans are cheaper than the fixed interest rate.
Q.2What is benchmark lending rate that affects your loan?
Banks are allowed to determine interest rates on their loans and advance but only in reference to base rate system that is prescribed by RBI .Banks cannot lend to anyone below these base rate. RBI has declared all new floating rate personal or retail loans and floating rate loans to Micro and Small Enterprises extended by banks from April 1, 2019 shall be linked to external benchmarks.
Q.3How does a loan to value ratio affect your loan?
The home loan rates are linked to the borrower’ credit score and Loan to Value ratio.
An LTV ratio is calculated by dividing the amount borrowed by the appraised value of the property, expressed as a percentage.
LTV ratio= Mortgage Amount/ Appraised Property Value.
For ex- For a Rs 100,000 appraised value, and making a 10,000 down payment, if we borrow 90,000. This results in an LTV ratio of 90%.It help lender determine the level of exposure to risk they take on when underwriting a mortgage.
Q.4 How does a borrower financial profile affect ?
There are various factors like income, dependants, stability, existing loans that determine the credit profile of a borrower.It affects your credit score and as we see the higher the credit the better the chances of getting an easy loan.
Q.5 how does higher repayment tenure affect your loan?
The interest rates applicable for shorter tenure loans are lower compared to loans with longer repayment period. A personal loan with longer repayment tenure will invariably result in higher total amount of interest paid for that loan.