Pay more for Home Loans and Car Loans
Your equated monthly installments (EMIs) for home and auto loans are likely to increase with banks preparing themselves to raise lending rates in tandem with the rate hike by the central bank.
“For a person who has taken Rs 25,00,000 home loan at 10.25 % for a 15-year period, his current EMI works out to be Rs 27,249. The new 25 basis point hike will result in an EMI of Rs 27,635. The rate hike will pinch borrowers. For a 15-year tenure, the person’s additional interest payments work out to be Rs 69,480,” said Surya Bhatia, a certified financial planner.
“For a Rs 3,00,000 Car loan at 12 % interest rate for five years the EMI is Rs 6,673. Now with the new rate hike the person’s EMI at 12.25 % works out to Rs 6,711,” added Bhatia.
Leading lenders in home and auto loan space told Financial Chronicle that they would pass on the hike to customers if their cost of funds goes up. Most lenders believe that the rates are likely to go up, and that they would take a final call on hiking rates in next one to two weeks.
Renu Sud Karnad, managing director of mortgage lender HDFC, said in the event of cost of funds going up, they don’t have a choice but to pass it on to the borrowers. “Normally, it takes a week for the rates to settle down, so the decision to increase the increase rates or not will be taken after a week,” she said.
Bank of India’s asset liability committee (Alco) will meet sometime this week or early next week. “Depending on the quantum of increase in cost of funds, we’ll take a call on lending rates,” says BA Prabhakar, executive director, Bank of India.
Similarly, Bank of Baroda’s Alco is expected to meet next week. “Today’s rate hike is an indication that deposit and lending rates may go up. We will have to see how other players react, market is very competitive. If we are not able to mobilise deposits at existing rates then we will have to revise deposit rates slightly. If deposit rates go up, lending rates will go up too,” BoB executive director-retail, NS Srinath told Financial Chronicle.
KVS Manian, group head – consumer banking, Kotak Mahindra Bank said they have not made any decision yet on the rate hike. “It will depend on how the market moves. Cost of funds will go up. We have been raising deposit interest rates. We will take a call on that after some time,” he said.
Melwyn Rego, executive director, IDBI Bank said, “Home loans are normally taken for 20 years, which cover an entire economic cycle. During this the rates go up or down and pan out. So there won’t be a significant impact immediately.”
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