Fintotal News Analysis | Loans Head North
Loans Head North
Ruby Jacob, 23 Sep 2010

What's happening?

The State Bank of India and several other Banks has increased the Base Rate, which is now the reference rate for home loans.  In case of SBI, it has moved up 0.1% to 8.6%. If your loan is in the older Prime Lending Rate system, that has increased too, to 12.5% from 12.25% earlier. This follows an upward trend in interest rates in the market. New and existing loans will both get costlier following this increase. This could mean your loan tenures get longer, or you're EMIs higher.

From 1 July 2010, the Base Rate has been the reference rate for all loans, including home loans. Typically, your loans would be 1.5%-2% above the Base Rate. While the Base Rate would change every quarter, this 'spread' would remain constant for you throughout your loan period.

What does it mean for me?

If you have taken a floating rate loan before 1 July 2010, you should move it to the new Base Rate system. You have a lot to gain from this, not least because you will then see your rates reduce if there is a decrease in the market interest rate. This is something you would have rarely seen in your old Prime Lending Rate system. Banks, however, may not take the initiate to encourage you to move - you have to do this yourself.

If you have been lucky to get into a fixed rate loan before 2006, you may be paying lower interest rates. In this case, there is no need to move to the new system.

Any new loan that you take after 1 July 2010 is anyway in the Base Rate system. Every quarter, this rate may move up or down depending on market conditions. So you should be prepared to fork out slightly higher EMIs over the years if rates move further North.

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