to the new borrowers only.”
Few banks like ICICI Bank also provides home loan on a six-month marginal cost of funds- based lending rate (MCLR) for a specific quantum of loan. In that case, the rate will be reset in every six months. Also, the lenders can add markup, which could be in the range of 0.25%-0.60%, to the MCLR.
In the case of borrowers with a weaker credit history, the markup range could increase.
But for those who are in the base rate regime, their lending rate will change with each change made by the lender in the said interest rate mechanism. The base rate is applicable to the borrowers who have availed the home loan before April 1, 2016 or have not switched to MCLR yet.
For instance, both SBI and ICICI Bank have recently cut the base rate to 9.10% per annum, much higher than what’s being charged in MCLR. Given the existing scenario, it would be wise for the borrowers to switch to MCLR, which could incur a fee of Rs 5,000-10,000, added Mehra.
Affordability is key: Home loan rates have moved southwards consistently for last five years and arguably are at the most affordable levels ever. Ravindra Sudhalkar, CEO, Reliance Home Finance said, “The effective rates for affordable housing are at sub 1% levels as compared to rental yields at 3-4%. This equation is supporting a robust uptick for the housing finance sector.”
Government has provided massive support to the housing sector by awarding infrastructure status to affordable housing. “Affordable housing units are exempt of income tax and service tax, this reduces considerable burden for builders which entails cheaper cost of construction. Reducing costs with double digit wage inflation has insured higher affordability,” adds Sudhalkar.
On June 7, RBI issued a notification to all scheduled commercial banks effecting a reduction in provisioning on standard assets from 0.40% earlier to 0.25% and a reduction in risk weights for incremental home loan disbursements (including higher ticket size loans) made after June 7, 2017.
Ratings agency ICRA’s group head and senior VP Rohit Inamdar says, “There could be an increase in balance transfers (shifting outstanding home loan to another bank / financial institution) so as to take benefit of lower-risk weights as they are only applicable on fresh disbursements.”
Rent or buy : For renters, it’s important to understand whether buying a house will actually be worthwhile. Suresh Sadagopan, founder, Ladder7 Financial Advisories says in the past three-four years, many people have seen property prices being stagnant, or actually come down in rupee terms.
Property offers two kinds of income-income from rentals and capital appreciation. Income from rentals is typically 2%, or less for residential properties.
“Let us say a property is worth Rs 1 crore today. An approximate rent would be Rs 25,000-27,000 per month. This means the rent is between Rs 3 lakh to Rs 3.24 lakh i.e. 3-3.24% is also the yield from rent.
But that is the gross yield. On this, the owner will have to pay maintenance, property tax and also income tax on rental income. After factoring in all this, the real income would be less than 2% of the current property price,” argues Suresh. Property appreciation can be unlocked only on sale.

It’s time to switch
In the ongoing rate cut marathon, do not forget the new rate is applicable to the new borrowers only
Few banks like ICICI Bank provide home loan on a six-month MCLR for a specific quantum of loan
For borrowers, switching to MCLR is advisable which could incur a fee of Rs 5,000-10,000, say experts
Affordable housing units are exempt of income tax and service tax, reducing burden for builders