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Home Loans get Expensive

With a reverse of trend the home loans had become cheaper in the beginning of the year. But with inflation and plunging stock prices, even home loans have not been spared and are going to become costly again. There was an expected rise on home loans also following inflation rates touching double digits. Only a mere formality was left. With SBI announcing the increase in the PLR or the Prime Lending Rate by almost .05% point to 12.75% from this week. The benchmark had been raised by the bank after the RBI had announced on Tuesday its decision to increase the repo rate which is also the short term lending rate and CRR or the Cash Reserve Ratio by .05 percentage point so that inflation could be controlled.

Following the lead of the SBI and triggered by the decision of the RBI, other banks have also decided to shoot up their home loans interest rates. HDFC, Jammu and Kashmir Bank, Yes Bank also increases their PLR by .25 to 1 percentage point in the previous week. Anticipating the RBI move other banks are also expected to follow up shortly. With the hikes by major banks setting the tone for the home loans giant leap, increments by the SBI are also expected to create an undulating effect in the market. Currently the SBI or the State Bank of India is the major leader in the banking sector.

With the SBI making its announcements the Union Bank of India was not far behind.

The Union Bank of India also announced that they would be raising their PLR by .05 percentage point from the 1st of July. Most of the other remaining banks and financial institutions are expected to make their statements at the end of the month with implementations from the 1st of next month. The increase in home loans rates will be for the existing borrowers, especially ones who have floating rates, and also for the new applicants.

For those who feel that fixed rates loans are better options, there is some bad news. Apart from HDFC and ICICI no other bank is offering the same for over 5 years with fixed interest rates. Even the former two banks are charging 3 – 4 extra percentage points than the floating rates. Public sector lenders are charging about 2 percentage points more for fixed rates as compared to floatation loans. But there is a clause of fixed rates also being revised every 2 years. Since June 2007 the rates had gone as low as 9.25% for 5 to 10 year loans but the CRR and repo rate have made these go for a toss and have shot up drastically.

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