Home loans available at interest rates below the 10-year G-sec yield! Should I choose now?

Here are a few banks that offer interest rates on home loans that are lower than the current yield on 10-year government securities.

The interest rate for home loans is at its lowest after several years. Interest rates on home loans have been at low levels for several years, and borrowers may find current rates lucrative enough to finance their home purchase. What is also interesting is that some banks are offering home loans at rates even lower than the current yield on 10-year government securities (G-Secs). This means that as a borrower, you are able to obtain funds at a lower cost than the government to borrow money from the market.

Lately, the benchmark yield has reached its highest level in two years and is around 6.74%, while home loans offered by some banks are available even at around 6.40%.

Banks such as SBI, Punjab & Sind Bank, Union Bank of India, Punjab National Bank, Bank of Baroda, Bank of India and UCO Bank are among the banks offering interest on home loans which is around 6.5% . The interest rate on Bank of Maharashtra home loans starts at 6.40%.

But, before making a decision looking at the current scenario, it is worth taking a close look at two key elements:

Who can benefit from the lowest rates: The lower rates are generally applicable to specific borrowers and not to all borrowers. Generally, the lowest rates are offered to borrowers who have a high credit score. Also, these attractive interest rates are mainly for salaried and loans below a certain amount, say Rs 30-Rs 40 lakh.

How fast will EMI change: Currently, real estate loans from banks are necessarily offered at a rate linked to an external benchmark. For most banks this is the RBI repo rate and hence it is referred to as RLLR – Repo Rate Linked Lending Rate. Any change in the repo rate will have an impact on the RLLR and therefore on the EMI of the home loan.

This is because in a floating mortgage rate, the EMI changes rapidly as the repo rate changes.

Thus, comparing the interest rate of home loans to the g-sec yield is only an indicator to examine the current situation. Over time, as the repo rate changes, your RLLR home loan will also see a change in the EMI. If you have already zeroed in on your home, as an end user, now is always the best time to buy with the maximum down payment and balance through a home loan. Also, keep a prepayment plan handy to finish the loan as soon as possible to save on interest charges.

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