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RBI’s new base rate norms – Reduction in home loan interest rates to result in lower home loan EMIs for existing customers as well
The RBI’s final guidelines on base rate will ensure that existing home loan borrowers get the full benefit of any reduction in interest rates. While it is too complex to understand how the base rate will be determined, the essence seems to be that the banks cannot discriminate between old borrowers and new ones. This will also mean that borrowers can compare banks properly and not just on the rates they get in their first few months or years.This change will be effective from December 2010.
Will the Banks really treat the borrowers favorably?
Home loan EMIs take away more than 50% income of most borrowers. And default rates in India are very low. Hence this is also a source of very big profit for lenders in India. Bankers, led by private banks, but even including PSU banks have been coming up with very smart products that lure unsuspecting borrowers. The latest such product was teaser loans. And most borrowers who borrowed at 7% odd in 2005 would remember their rates going up to 13% in almost no time!
The cat and mouse game between the regulator and companies will go on forever. The best minds work for the Banks. RBI can only catch up with them afterwards. And even there, RBI has shown a very soft corner for Banks who have asked for time frame for implementing transparency, due to lack of profits. It is tough to spot a bank in India that did not make profits even in 2008-09.
We only wish that RBI stands for transparency, and with a pro-consumer tilt. Till then, we can only hope that things will improve. For the moment, till the middle class realises that it is not RBI but Consumer Courts who will deliver justice, things may remain same.
Final word of advice for home loan borrowers- borrow assuming that your rates will increase. And don’t buy a home just because interest rates are low- they are low only for the first year. Home buying decision should made only if you like the property, like the prices and can pay 20-30% more EMI in near future.
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