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Home loan in India: Is it justified to reduce interest rates for new borrowers alone?

Updated on February 11, 2010

High interest rates hurting margins: SBI

Home loan in India, highest interest rates of all time

No, it is not at all justified for reducing home loan interest rates just for new borrowers as it is only meant for gaining up new clients and customers from the market by the banks. The banks and money lending services know that if we will not decrease the home loan rates for new buyers, there will be no one to take our home loan product which is a major source of income for around every bank or financial institution in the world.

I can give my own example, I purchased a flat around 3 years back in September 2005 in New Delhi and got my loan santioned from a leading banking institution at a rate of 7.25% reducing balance (floating rate). I tried to take a fixed rate of interest but was not able to take a fixed one because my total income was not matching the equated monthly installment ratio that means my monthly installment was going above 60% to 70% of my monthly income which was not agreeable with the banking authorities and they were unable to provide me with a fixed rate of interest which was 9% at that time.

It is interesting to know that after around 1 year of buying my flat, my monthly installment increased and the interest rate increased up to 9.50%. Then, after 6 or 7 months, it again increased to around 10.75%, then again 11.25%, and now today it is 13%. It is all over the news that banks are going to reduce their interest rates but where??? I have not seen a single reduce in my interest rate for the last three years and right now also it is up.

Believe me dear, I have not recieved a single notification or mail at my house about a decreased rate of interest. In three years, it is almost double.

So now what do you think that it is justified to decrease interest rates for only new buyers????? What about their old loyal customers who are paying their EMIs every month.

Banks need to decrease their interest rates for everyone. I have read in the news that some banking institutions in India are providing interest rate of 11.25% to their new buyers.

I am totally not agreeable with this step taken by the bank or RBI or govenment.

Their should be equality for all, new and old buyers, both of them. After all trusted ones should also get the benefit.

Due to high interest rates, banks have seen 15 to 20% preclosure of home loan accounts in India

Mr. Home loan at the interest rate rises dentist's clinic
Mr. Home loan at the interest rate rises dentist's clinic
Buying home today in India is a lot more difficult due to high interest rates.
Buying home today in India is a lot more difficult due to high interest rates.
Investors are taking one step back in the real estate industry.
Investors are taking one step back in the real estate industry.
A home buyer is looking for moving towards a fixed rate of interest due to potential of more high rate of interests in future.
A home buyer is looking for moving towards a fixed rate of interest due to potential of more high rate of interests in future.

YouTube - Where is Cheapest Home Loan?

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    • soni2006 profile image
      Author

      Rajinder Soni 5 years ago from New Delhi, India

      You are right Sadananda Samanta

    • profile image

      Sadananda Samanta 6 years ago

      The Govt. and RBI both are totaly failed to control the increasing rates.

    • soni2006 profile image
      Author

      Rajinder Soni 7 years ago from New Delhi, India

      Yes David and this is the reason why home loan interests have dropped by 3 to 4% in the last year. Now there are more home buyers and investors in the market. Also, lowered interest rates have attracted more investors in the real estate market as up until last year large scale property investors were putting a hold on their investments due to a sudden rise in home loan interest rates.

    • profile image

      David from home loans SA 7 years ago

      A very informative article you got there. Honestly, I'm not so good at this field but I have to agree with you what you mentioned above that if you will not decrease the home loan rates for new buyers, there will be no one to take our home loan product. This is the part where I have to say that we need to be practical nowadays. And I know its part of being practical since it is a major source of income right?

    • soni2006 profile image
      Author

      Rajinder Soni 8 years ago from New Delhi, India

      Which few banks you are talking about Online Banking. I think all the banks take part payments towards the principal and not towards the interest and tell me how it is possible?

    • profile image

      Online Banking 8 years ago

      Paying off a home loan in can be sped up by paying a few extra bucks towards the principal. But this practice is allowed by few banks else the money is taken towards the interest and principal equally.

    • soni2006 profile image
      Author

      Rajinder Soni 8 years ago from New Delhi, India

      Thank you so much Sudhir for that really helpful comment. Your advice is really useful friend. I agree.

    • profile image

      Sudhir  8 years ago

      I have found out one great way to save on money while parying EMI's for your home loans.

      Increase your EMI by a few thousand Rs and you ll find a big difference in the tunure for your home loan. The increased amount directly deducts from your principal amount thereby reducing the interest rate on the principal caluclauted monthly.

      For eg I have a loan of Rs11 lakh @ 12.5% interest. The EMI calculated by the bank was Rs 12,600/- and the tenure had increased to 225 months after increase in EMI from 9% to 12.5%. I increased by EMI 10 Rs 15000/- and the tenure decreased to 160 months.

      The banks calculate the least EMI that a customer has to pay and this EMI has the max interest component and min principal component. When you increase your EMI the difference amount is deducted from the principal thereby reducing your tenure. It a great way to spend a few thousand and save a ton.

    • soni2006 profile image
      Author

      Rajinder Soni 8 years ago from New Delhi, India

      Thanks a lot Enjagan for updating us with these latest news on reduced home loan interest rates in India but these interest rates are for new borrowers only and not for existing customers. I am an existing customer of a bank in India and I am still paying 11.25% reducing balance for my home loan in Delhi.

    • profile image

      Enjagan 8 years ago

      Home Loan Interest Rates - Bank of Maharashtra

      Bank of Maharashtra has reduced the home loan interest rate. It is comfortable to all type of customers.

      Loan Amount 1yr 2yr 3yr 4yr 5yr

      30 Lakh 8 8 8.50 9.50 9.75

      Above 30 lakh 8.25 8.25 9.00 9.75 9.75

    • soni2006 profile image
      Author

      Rajinder Soni 8 years ago from New Delhi, India

      Yes LIC policies are a great source for providing home loans. Loans against LIC policies is real but they have some terms and conditions for the same. Kindly visit the LIC website for further details or contact an LIC home loan agent in your area.

    • profile image

      LIC of India 8 years ago

      Can I get home loan against my LIC policices? I stumbled upon http://www.liclifeinsuranceindia.com and they have some plans where I can get loans against policies.

    • soni2006 profile image
      Author

      Rajinder Soni 8 years ago from New Delhi, India

      Thanks for expressing your expert view on refinancing Scheng1.

    • profile image

      scheng1 8 years ago

      I think it's time to refinance and get a fixed rate. Most people consider refinancing after 3 years.

    • soni2006 profile image
      Author

      Rajinder Soni 9 years ago from New Delhi, India

      Thanks for visiting this hub and such a nice comment. I am glad that you visited my hub through google.

    • profile image

      Kuljeet Singh 9 years ago

      Home loan interest rates have gone high so far in the last 3 to 4 years. The interest rate on my home loan was around 7 to 8% 4 years back but now it has bounced to around 12.5 to 13.5% and when it is all over the news that the rates are increased, the real news are the rates only decreased for new customers. I agree with this article which I found while googling today and this is really not at all justified. Banks should rethink on this idea before moving ahead. Very nice article on the latest matter of concern nowadays.

    • soni2006 profile image
      Author

      Rajinder Soni 9 years ago from New Delhi, India

      Wow this is really wonderful that there are a lot of people who think just like me, I think if interest rates are same for all, this would be the most wonderful thing. There should bbe equality. Thanks Jitender for your opinion.

    • profile image

      Jitender Singh Luther 9 years ago

      Yes, I also agree with the need of reducing interest rates for all borrowers, new or old, fonly reducing them for new customers is not justified by the banks.

    • soni2006 profile image
      Author

      Rajinder Soni 9 years ago from New Delhi, India

      Yes Premsingh you have raised a very good point that when the new borrowers will become old customers after a few months, they will also be on the same boat as me, an old customer, right now. This is surely a great concern for all the people who are applying for loans or have borrowed loans in India. Thanks for the appreciation.

    • premsingh profile image

      premsingh 9 years ago

      Reduced interest rates for new borrowers. This shows how smart is our finance minister our own economist PM. One thing these smarty are forgeting that this step will create doubts in the mind of new borrowers. They will become existing borrowersa after few months and when interest rates are further decreased they will not get any benefit. Anyways, you have highlighted an issue that is of great concern to common people. welcome effort.

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