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HDFC cuts floating home loan rates 20/12/2008
In what marks the beginning of a softer interest rate regime for home loan borrowers, the country’s largest mortgage player, Housing Development Finance Corporation, has cut the floating home loan rates by 0.5 percentage points.

While the rate reduction will translate into lower equated monthly instalments (EMIs) for new as well as existing borrowers, new borrowers of up to Rs 20 lakh stand to gain substantially. The interest charges for these new borrowers will be lower by as much as 1.5 percentage points. For other categories of customers — existing borrowers with loans up to Rs 20 lakh and new as well as old borrowers of loans exceeding Rs 20 lakh — the interest rates will come down by 0.5 percentage points.

An individual with a Rs 20 lakh loan will see her EMI decline by Rs 600-680, depending on the loan tenor. The EMI will come down by Rs 680 for a 20-year loan, Rs 660 for a 15-year loan and Rs 600 for a 10 year-loan. A back-of-the-envelope calculation suggests that a 0.5 percentage point cut lowers the EMI by Rs 34 for every Rs 1 lakh of a 20-year loan tenor. It’s Rs 32 for a 15-year loan and Rs 30 for a 10-year loan of the same amount.

The move will benefit about 9 lakh borrowers, who constitute roughly 90% of HDFC’s retail customers. HDFC has kept the interest on fixed-rate loans unchanged.

A new borrower should opt for floating rate loans as the odds are heavily in favour of a further drop in interest rates. “Earlier this week, we raised medium-term funds at an annualised rate of 9.5-9.6%. If there is a further reduction in the cost of funds
, we will pass that on to our borrowers,” said HDFC’s MD & VC Keki Mistry.

The company is mobilising wholesale funds at single-digit rates for the first time in recent months. Bankers expect the triple A corporate bonds to give lower yields, following the decline in government bond yields by 150 bps in a fortnight. HDFC’s high-value loans exceeding Rs 20 lakh will attract interest rates of 11.25% or 100 basis points higher than loans below Rs 20 lakh.

ICICI Bank has also hinted at an imminent cut in lending rates, but only after a reduction in deposit rates. “We will be in a position to lower the interest rates for borrowers only when our interest cost of deposit comes down. We are equally committed to our depositors and borrowers,” said ICICI Bank CEO-in-waiting, Chanda Kocchar. The bank is offering interest rates as high as 10.5% on deposits for 390 days, 590 days and 890 days, although the PSU banks have reduced the maximum rates to 9.5%.
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