Floating interest rates have surged up by three percent and millions of housing loan customers has begun to pay a heavy price. A customer who was paying 7.25 percent for his floating home loans just over a year ago is today forking out as much as 10.25 percent.

There is more bad news from the banking industry. "Interest rates are likely to move up further in tandem with the sharp surge in inflationary spiral. Most banks would be waiting for the signal from the credit policy to be announced shortly, before raising their prime lending rates," M. Venugopalan, Chairman of Federal Bank, said. Most floating rates are based on the PLR.

Several customers seem oblivious to the interest rate revisions since there has been no change in the EMI, but unknown to them, the period of repayment just gets extended. "The interest rate for my Rs 12 lakh housing loan has moved up to 10.25 percent from the 7.25 percent that I started out with couple of years back. But I never felt the pinch till I went to the bank for my year-end appraisal," Pravin Kumar, an employee of a pharmaceutical company said.

But some other customers are sitting pretty. "I was quite lucky to have locked up my Rs 17 lakh housing loan at a fixed rate of 7.5 percent couple of years back. Several of my friends who had advised me to opt for the 0.25 percent floating rate differential have not been as lucky," said Shilendran, General Manager with a leading hotel group.

Even as the threat of imminent surge in interest rates loom large, the Free Reference Rate of ICICI Bank, the major player in the housing loan sector has already gone up by 50 basis points to 10.75 percent as on June 2006 and every new customer would be granted loans at the rate of 9.5 to 9.75 percent. The fixed rate is already hovering at 11.5 percent. Further revisions would take the rates beyond the 10 percent levels even for new customers.


Any comments from fellow members here ????
Read more
Reply
2 Replies
Sort by :Filter by :
  • Will recent rise in home loan rates be continued?

    But my question is whether the trend will remain upward only as I read in an article. The article stated on the phase of low home loan interest rates during past decade and analyzed the recent rise in home loan rates to be a continuing trend for the coming years.

    And which type of interest rates will be safer to opt for considering the current and coming trend in home loan rates in India - flat or floating?
    CommentQuote
  • Linked to the Money market

    Home Loan interest rates depend a lot on the economic scenario in a macro economy. As things are looking up in all sectors of the Indian Economy, credit offtake is on the rise. At the same time, cost of capital accquistion has also shot up. Banks and HFC's are operating on wafer thin margins, but make money on the large spread of home loans and big turnovers.

    Currently it will make sense to stick to a fixed rate if it comes to you at 11%. Or else stcik to floating rate and rejig your loan in case the floating comes down to 9% levels and Fixed rates are around 10.5%

    But as i said earlier, there is really no such thing as Fixed Rate. The Fixed Rate is linked to the PLR of the Bank, which can be benchmarked higher or lower.
    CommentQuote