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News You Can Use: SBI Gives Home Loan Borrowers An Option To Switch To Repo-Linked Loans

Team BankBazaar
·3-min read
Photo: www.freepik.com
Photo: www.freepik.com

The country’s largest bank, State Bank of India, has now given an option to its existing home loan borrowers to move to the new external benchmarked-linked loan regime, the Mint reported. Ever since the Reserve Bank of India directed banks in October 2019 to launch a new external benchmark-linked home loan regime for faster transmission of the central bank’s rate cut benefits to borrowers, most of the banks have introduced repo-linked loans. These loans, as the name suggests, are linked to the central bank’s key policy rate which has been cut to a record low of 4% necessitated by the Covid-19 outbreak. The report stated that SBI home loan borrowers can now switch to repo-linked loans to benefit from these low-interest rates after paying a one-time switchover fee plus GST. The SBI is currently offering interest rates between 6.95%-7.6% p.a. on its repo-linked loans.

“Making the announcement through a tweet, the public sector lender said that homebuyers applying for loans will get three benefits- nil processing fee, 0.10% interest concession for borrowers having a higher Cibil score for loans above 30 lakh and less than 1 crore, and an additional 0.5% concession if applied through SBI’s Yono app,” the report added.

Home loan borrowers should carefully factor in the savings made on their interest outgo by switching to a repo-linked loan and the loan transfer costs before finalising their decision. Switching to the repo-linked loan regime could significantly bring down their interest payable on the loan and also reduce the loan tenure, especially if such a move is made towards the beginning of the loan tenure. However, borrowers should also understand that the interest of a repo-linked loan will increase whenever the central bank increases the repo rate. So, they would be well-advised to make adequate prepayments, if feasible, during the low-interest phases to reduce their loan burden. Also, they should understand that a repo-linked loan usually consists of the repo rate + bank’s margin + customer’s risk spread. Meaning, the best rates of a repo-linked loan are reserved for those borrowers who have a stellar credit score (usually above 750-800). Also, they should keep an eye on their credit scores and take quick corrective measures throughout the loan tenure as any momentary dip could increase loan EMIs until their credit score improves.

Earlier this month, the SBI had also announced its decision to change the reset frequency of its Marginal cost of funds-based Lending Rate (MCLR) home loans from one year to six months. “Enjoy the benefits of a reduction in the interest rate without waiting for a year. SBI has reduced the MCLR reset frequency from 1 year to 6 months,” SBI tweeted then.

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