Have home loan? EMIs are set to fall

If fresh home loan borrowers had reason to celebrate on Saturday when State Bank of India (SBI) cut its rate to 8%, existing borrowers too can look forward to paying lower EMI very soon.

Yesterday there were strong signals of public sector banks cutting their prime lending rates (PLR) in response to further prodding from the government - this time in the form of Pranab Mukherjee - to cut interest rates. As floating home loan rates are tied to PLR, any cut in PLR will mean lower rates for existing customers too.

Banks like Uco Bank and Corporation Bank have already announced cuts in PLR ranging from 0.75 to one percentage point and others have indicated they are likely to do so within a week. SBI chairman O P Bhatt has also indicated that the bank will cut its PLR soon. So, it’s a question of time before loan takers from PSU banks get relief on their EMIs.

But what about those who've borrowed from private sector banks like ICICI or HDFC - who between them have more than half of the home loan market - and are currently paying rates of 11-13%? They need not despair. It's likely that these banks too will cut interest rates.

But if they don't, existing borrowers could use the lower rates being offered by public sector banks to shift. Even if they have to cough up the usual pre-payment charge of 2% of the outstanding amount, they would still benefit significantly from such a shift. Someone with a Rs 50-lakh loan, for instance, could save more than Rs 50,000 in the next 12 months alone.