As HDFC raises lending rates, here's how it will affect home loan EMIs

If you are planning to take a loan for your dream home from Housing Development and Finance Corp (HDFC) Bank, then get ready to pay more as the lender on Thursday announced increasing its lending rates by 0.20 percentage points, a day after the Reserve Bank of India (RBI) increased the policy interest rate by 25 bps for the second time in two months.

HDFC’s benchmark prime lending rate now stands revised at 16.65%, effective 1 August. 

The hike will have a direct effect on the EMIs (EMIs equated monthly instalments)-- the fixed amount you to pay to bank or lender every month on a fixed date -- as they are set to get costlier.

With effect from April 1, the interest on home loans for up to Rs 3 mn has been raised to 8.45 per cent for male borrowers against 8.4 per cent for female borrowers.

For loans between Rs 3 mn and Rs 7.5 mn, interest has been raised to 8.6 per cent for male borrowers against 8.55 per cent for female borrowers.

The interest on a loan of above Rs 7.5 mn will be 8.7 per cent for male borrowers against 8.65 per cent for female borrowers.

"HDFC has increased its retail prime lending rate on which its adjustable-rate home loans are benchmarked by 20 basis points, with effect from April 1, 2018," the country's largest mortgage lender said in a regulatory filing.

The last rate increase by the bank was on June 2, days ahead of the RBI’s monetary policy review, when home loan rates were raised by 10 bps.

While other lenders are yet to announce a lending rate hike, some banks have already started increasing deposit rates. With RBI's two back-to-back rate increases, even banks expect to pass on the higher cost of funds to their customers. 

On Wednesday, at least three banks - Union Bank of India, Kotak Mahindra BankNSE 1.72 per cent and Karnataka bankNSE 1.60 per cent – increased their marginal cost of lending rates (MCLR) by 5-10 basis points. The largest mortgage loan providers such as State Bank of India (SBI), ICICI Bank and Punjab National Bank have kept their MCLR rates unchanged, a report in The Economic Times said.

Marginal Cost of Funds-based Lending Rate (MCLR) is the minimum interest rate of a bank below which it cannot lend to the loan seekers

Relation between repo rate, MCLR and EMIs

The repo rate has a direct impact on bank’s cost of borrowing from the central bank, that means the banks will raise their MCLR (Marginal Cost of Funds based Lending Rate) or charge more interest on loans. Hence, it makes costlier for lenders (banks) to borrow money. 

As the interest rate of loans is linked to the MCLR, repo rate surge causes a hike in interest or lending rates. Home loan borrowers will be affected to a great extent as housing loans are taken for a longer duration. In fact, since the beginning of this year, several banks have been increasing their MCLR rates, said a Livemint report.

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