New Delhi: Working in tandem with the government to resurrect the economy and boost growth, the Indian Banking Association on Monday decided to reduce the interest rates on home loans. Now, interest rate for home loans upto five lakhs and for a maximum period of 20 years will be 8.25 percent while the loan of Rs 5-20 lakhs will attract an interest rate of 9.25 percent.
In a move which would come as a relief to borrowers, the IBA has decided to freeze the interest rate for the first five years, meaning that his EMIs won’t fluctuate. After the freeze period, the borrowers will have the option of choosing between floating or fixed rate of interest.
The new package has also done away with the processing fee and pre payment charge on loans upto Rs five lakhs. A free insurance will also be provided to the borrowers, the premium of which will be borne by the bank.
The IBA has also announced a margin of 10 percent for loans upto Rs five lakh and 15 percent for loans between Rs 5-20 lakh. It means that a borrower will have to pay 10 or 15 percent of the purchase value upfront, as per the loan amount.
The new home loan rates will be valid till June 30, 2009.
The new package also assures the borrowers in case the lender bank comes up with a home loan product of lesser value. In such a scenario, the bank will match the older package with the lower one.
The package is aimed at boosting growth, and will be available only for new home purchases and not for refinancing existing borrowers.
The special package will only be offered by state-run banks.
Leading private lenders, including ICICI Bank and HDFC, appeared favourably inclined to cut their rates, with sources saying that the two lenders would study the PSU banks’ package before taking a call. The sources said any decision would be taken after ascertaining whether PSU banks are getting any government subsidy for implementing the package.
The banks have also decided to cut the lending rates for the micro and medium enterprises by 100 basis points.
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