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more borrowers are opting for floating rates


more borrowers are opting for floating rates

Last updated: May 2 2007
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  • more borrowers are opting for floating rates


    KOLKATA: These days nine out of 10 existing home loan borrowers are feeling the pinch after the latest rise in interest rates. Here’s why — nearly 90% of home loans borrowers have taken loans on floating rate basis that is subject to frequent changes based on interest rate movements. Leading home loan financiers like Housing Development Finance Corporation (HDFC), ICICI Bank and State Bank of India (SBI) confirmed that nearly 90% of their existing home loan customers are paying floating rate interest.

    As a thumbrule, every 0.25 percentage point rise in home loan rates translates in a higher equated monthly installment (EMI) of around Rs 16 per one lakh for a 20-year loan. Likewise, customers would need to pay an additional Rs 15 per one lakh for a 15-year loan, Rs 14 per lakh for a 10-year loan and Rs 13 per lakh for a 5-year loan.

    For instance, following the latest rise in interest rates, if a certain home loan borrowers of a 15-year tenure Rs 10 lakh loan from HDFC was paying an interest of 11% floating rate is now has to pay an 11.50% rate. In such a case, they will have to shell out a higher EMI of Rs 1,682 against Rs 11,366 earlier — a net increase of Rs 316 per month.

    Incidentally, HDFC raised its lending rate by 0.75 percentage point for new customers and 0.50 percentage point for old customers. This is the fourth successive rate hike since May 2006 for HDFC customers who have borrowed on a floating rate basis. HDFC is now charging 11.25% floating rate and 13.25% fixed rate for new customers.

    HDFC managing director Keki Mistry, however, does not expect any further rise in home loan rates. “The interest rate issue was revolving around the issue of high inflation. I feel we have reached the peak. I don’t foresee any change in interest rate in near future. SBI has said that it would not tinker with the interest rate for its existing home loan borrowers. ICICI Bank, on the other hand, increased its home loan rates by one percentage point to 14% for fixed rate loans and to 12% for floating rate loans.

    In case one borrows from ICICI Bank on floating rate basis, for a 15-year tenure of Rs 10 lakh, the customer will now have to pay an EMI of Rs 1,200 as against Rs 1,137 before the hike in home loan rate. For HDFC, almost 86% of its home loan borrowers opted for the floating rate. ICICI Bank’s retail head Rajiv Sabharwal said 90% of the bank’s existing home loan borrowers are floating rate customers.
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