Do the highest tax saving with a home loan on a let out property

If you are in higher income tax slab, saving tax with a home loan on a let out property is a must

It starts to pinch harder when an increase in your income results in higher tax leakage as you move from 10% income tax slab to the 20% income tax slab or from a 20% income tax slab to the 30% income tax slab. Here you need to be more efficient with tax planning and optimize the saving from all tax saving avenues.

Self occupied property works well for 10% income tax slab: Till the time you are in 10% income tax bracket a home loan for self occupied property helps you save taxes immensely. You get Rs 2 lakh annual deduction on account of interest payment of home loan under section 24b. Besides this your principal repayment of home loan as it qualifies for section 80C deduction under which you can claim deduction maximum upto Rs 1.5 lakh in a given financial year. It is not unusual for a person falling in 10% income tax slab not able to utilise 100% limit of Rs 1.5 lakh under section 80 C each year through various tax savings investments. In such a case the principal repayment amount in the range of Rs 20000 to Rs 1 lakh for a home loan of around Rs 15 to Rs 30 lakh nicely fits in to cover the gap in exhausting the Rs 1.5 lakh annual limit under section 80 C and save the taxes.

Higher income necessitates better tax planning: Things start getting complex the moment your annual taxable income rises above Rs 5 lakh. However the moment your income rise and you go for a higher home loan amount and the EMI crosses Rs 30000 then you make payment above Rs 3.6 lakh a year which is above combined limit or section 80C and section 24b of Rs 3.5 lakh for a self occupied property. Most people in this stage discover that even after exhausting their section 80C limit and home loan interest limit they end up paying huge amount of tax. As your income goes higher from this level you feel helpless in saving taxes as you have already exhausted the limits.

A let out property helps indirectly in tax saving through section 80C: At higher income level you also face problem of section 80C being crowded out in a very inefficient way. Your EPF contribution goes higher, your life insurance contribution goes higher, beside this you do your investment in ELSS, ULIP, PPF, etc but all these go in vain as they do not provide any tax benefit under section 80C because your home loan principal repayment in a given financial year alone is more than section 80C limit of Rs 1.5 lakh. This is where section 24b provides you additional tax saving opportunity. First of all the annual interest payment during first half of your home loan tenure remain higher. If your property is a let out property then you get deduction on the entire interest amount which is in most of the cases more than the combined limit Rs 3.5 lakh of principal and interest payment for a self occupied house. So higher the loan amount higher would be annual interest outflow and higher will be the resulting tax saving. This also helps you do utilise your section 80C investment limit through your various tax saving investments.

So if you fall in a higher income tax slab then going for the option for a higher home loan for a let out property may be the best thing you can do to enhance your tax saving avenues.

A high CIBIL score makes a difference with lowest rate home loan

Lowest interest on home loan: Get the biggest reward of your good credit history

Borrowers with good credit history and with higher CIBIL score will now get tangible reward in terms of lower interest rate on home loans from Bank of Baroda and save interest amount.

Lowest interest rate for higher credit score: Bank of Baroda (BoB) is giving the cheapest interest rate on home loans in the country, which is 8.35%, to its new home loan borrowers, who have a credit score above 800. A new era of credit history based differential pricing of home loan interest rate has begun. Earlier BoB decided to reduce its one year MCLR (Marginal Cost of funds based Lending Rate), a rate to which interest rate of most of the loans are linked, from 9.05% by 70 basis points to 8.35%.

A long overdue reward for good credit history: A bank typically keeps a spread which it charges over the MCLR whenever it offers a loan to its borrower. This spread in case a home loan from Bank of Baroda is 1% as a result a normal new home loan borrower will get a new home loan at annual interest rate of 9.35%. This interest rate does not look attractive when you compare the other lower interest rates offered by other bigger lenders SBI and HDFC as 8.6% and 8.65% respectively to their women borrowers, and 8.65% and 8.70% respectively to other borrowers. However BoB through its new offer, which is credit score based home loan interest rate, has come out with market beating home loan interest rate of 8.35%. The bank will offer this interest rate to those new home loan borrowers who have a credit score of 800 or above. It was long overdue step in the Indian lending system to start charging a differential interest rate based on credit history and reward good repayment behavior with cheaper interest rate on loan.

Existing borrowers also get good benefit from the rate reduction: A majority part of repayment of a long term loan goes paying interest payment therefore the cheaper the interest rate lowers the burden for the borrower. Every percentage point of the interest rate matters especially when it comes to a big and long term loan like home loan. If a borrower with home loan of Rs 40 lakh for 20 years tenure sees his interest rate fall from 10.05% to 9.35% he will save Rs 4.41 lakh of total interest during his home loan repayment. This is what an existing home loan borrower, who was on base rate system and paying 10.05% interest and now decides to switch to MCLR system, will save through the MCLR rate reduction of 70 basis points by Bank of Baroda.

New borrower with high credit score will save a ton: However new home loan borrowers, who have their credit score above 800, will end up having additional saving on account of total interest payment during the tenure of the loan. As they would get the home loan at 8.35%, in the above case when compared to existing home loan borrowers, the new borrowers with higher credit score would do additional saving of Rs 6.14 lakh on total interest rate payment. This means that due to the interest rate reduction or the MCLR reduction a new home loan borrower with higher credit score will now get a total interest saving benefit of Rs 10.55 lakh (Rs 4.41 lakh +Rs 6.14 lakh).

So it definitely makes sense for you to check your credit score and if you have higher credit score you must avail this huge interest rate saving benefit.

What you must know about BHIM app launched by government

BHIM is expected to revolutionise how we make payments and transfer money so be ready to embrace the future of money. 

We attempt to answer all your curiosity and problems in understanding the BHIM app.

What is so special about this BHIM app?

• It is smart way of using your bank account, making and receiving payment through your mobile phone.
• It is user friendly and provides high level of convenience.
• You do not need to be a tech savvy person to use BHIM as it is so convenient that any person with basic knowledge can use it.
• It works 24 hours, 7 days a week and 365 days a year so you can use it on weekends and holidays.
• The money is transferred immediately.
• You do not need bank account details as money can be transferred using mobile number and virtual payment address also.
• You can operate multiple bank accounts linked to one mobile number with one BHIM app

Three ways you can send money using the BHIM app

• To a mobile number: You can transfer money to the mobile number of an intended beneficiary if the beneficiary has this mobile number registered in his/her bank account. 
• To a VPA: You can transfer money directly to Virtual Payment Address (VPA) if the beneficiary has already become a member of UPI and generated his/her VPA.
• To a bank account: Through BHIM you can transfer money in the traditional way just as you do in case of NEFT transfer. For this you need beneficiary name, bank account number and IFSC. However unlike NEFT the money is transferred instantly through BHIM.

4 ways in which you can receive money through BHIM app

• On mobile number: You can make a request to receive money on your mobile number linked to a bank account.
• On your VPA: You can also send a request to receive money on your VPA
• To your bank account: You can give the account details like account number, account holder's name and IFSC to the sender to receive payment.
• Through QR code: You can also generate a QR code give it to the sender to enable him/her to make quick payment through BHIM.

How to set up BHIM app in your mobile phone?

• You need a smart phone if you wish to use the app.
• Currently app is offered to android phone users through Google Play Store. Later on it could be offered on iOS, Windows Mobile and BlackBerry also.
• Your mobile number must be registered with your bank account so that BHIM can automatically identify your account/s through your mobile number.
• You need to have UPI PIN for the desired bank account which you need to link on BHIM.
• If you do not have this UPI PIN then you need to keep your debit card details as you would need its last 6 digits and Valid Upto date to generate a UPI PIN through BHIM.
• If you have multiple SIM card in your mobile phone you need to be careful to chose the right mobile number when the BHIM app asks you to verify the number through SMS.

How to use QR code to receive money through BHIM
This app is going to be extensively used by shopkeepers and small businessmen to receive payment from their customers. Students can also use this app to receive money from their parents at any time. Through QR code BHIM allows you to do demand a payment from anybody by sending a Quick Response (QR) code which is a bar code having your virtual payment address. You can generate a QR code through BHIM app for a specific amount and a remark to receive money and send it to the intended person from whom you wish to receive money. When the intended person receives this request and if he has BHIM installed on his/her phone he/she can just need to authorise the payment by entering the PIN.

What if you have multiple account linked with same mobile number?
When you have same mobile number registered with many bank accounts then also you do not need to worry. After entering your PIN when you enter the BHIM app you would see MY INFORMATION tab under which you can find the third option which is Bank Account. You need enter this Bank Account option and once you enter you would find an option to change bank account at top right of the screen. It will again take you bank to the list of all banks from which you can chose your desired bank account. It allows you to quickly change bank accounts as per your requirement.

Top deposit picks from government's small savings schemes

Interest rate on post office deposits to remain unchanged, utilise the opportunity to lock in fund at high interest rates.

As a part of the quarterly exercise to review the prevailing interest rate of small saving schemes, the union government has decided not to change the existing interest rates. Recent demonetisation of currency notes of Rs 500 and Rs 1000 has flooded banks with low cost current and saving account deposits As a result almost all banks have reduced their interest rate on fixed deposits. Many people have been hardly hit by this sudden steep fall in deposit rates specially when it was a major source of their livelihood. Senior citizens are the most affected lot as they keep their savings in FD to arrange regular income flow for retirement life.

Post office schemes gives a ray of hope: In the falling rate environment the government's call to keep the interest rate of small savings schemes unchanged is a welcome relief. In past government used to review the interest rate of these schemes annually however now it has decided to do the review on quarterly basis starting from April 2016. Government has also linked the interest rate of these small savings schemes to the yield of government securities in the debt market. However, after the recent review as the government has decided not to change the interest rate for this current quarter therefore the interest rate on these schemes will remain unchanged at least till March 31, 2017.

Lock your funds at higher interest rate: During the demonetisation period almost all banks reduced their deposits rates. The biggest fall in interest rate of was seen for deposits of tenure of 2 years and above. Majority of the large banks are now giving an interest rate 7% or below for a deposit of 2 years and longer term. In case you have surpluses to park or have some existing FDs that are maturing soon and you wish to re-invest them for 2 years or longer tenure, you can use this three months window to park your deposits at relatively high interest rate offered by these small saving schemes from the post office.

Utilise these deposits for tax savings: Some of these schemes provide section 80C deduction benefit and would be handy for your to make investment for tax saving purpose. The schemes which provide you section 80 C benefit are National Saving Certificate (NSC), 5-years Tax Saver Time Deposit (TD), Public Provident Fund (PPF), Sukanya Samriddhi Account (SSA) and Senior Citizen Saving Scheme (SCSS). However, these schemes come with lock-in period which is 5 years for NSC, 5 years tax saver TD, and for SCSS, and for PPF it is 15 years while for SSA funds are locked in till the girl child attains the age of 21 years.  The table below will help you compare the interest rate for a relevant tenure and go for a suitable deposit.

One thing you can notice is that these small schemes are providing highest long term  interest against the banks that are offering their highest interest rate on deposit maximum up to1 year or upto 2 year tenures. So if you are looking to park your fund for longer than this then you have to go for these post office deposits. You should also make sure that you utilise these three months window as there is high likelihood of government reducing the interest rate from April this year.

#PostOfficeDeposit #SmallSavings #NSC #KVP #PPF #SCSS #SeniorCitizen #HighRate #Taxsaving #Tax #IncomeTax

Know all about hot fovourite Post Office Small Savings Schemes

Book your deposits before there is another reduction in interest rate by the government

With Indian government retaining the interest rate of small savings schemes at least till March 2017 post office deposits provide one of the best options under safer fixed income investments for you to lock in your fund at relatively higher interest rate for a long term.

While most of the banks have slashed their fixed deposit rates below 7% government'small savings schemes still offer better rates for different investment options. If you have surpluses waiting to be parked in safer fixed income investment option then these are your best bet.

This all in one table helps you understand analyse various investment options offered by the post office. It comprise all the popular savings options like National Saving Certificate (NSC), Kisan Vikas Patra (KVP), Senior Citizen Saving Scheme (SCSS), Public Provident Fund (PPF), Sukanya Samriddhi Account (SSA), Time Deposits from 1 year to 5 years term and recurring deposits. Be it the interest rate, or how the interest on deposits are calculated or whether the investment has section 80C benefit or not and what are the withdrawal or foreclosure options.

Looking to book FDs: Get the highest FD rates from banks while interest rates fall

Know the highest interest rates for bank fixed deposits of various tenures

As interest rate are falling you can still find the highest FD rates from various banks. As interest rate are expected to fall in near term it makes sense for you to lock in your funds at the earliest and that too at the best interest rate possible. We have listed best interest rates and the corresponding banks for fixed deposits with tenures of 1 year, 2 years, 3 years and 5 years. Depending upon the choice of your tenure you can find an appropriate bank to get the best FD rates for your selected FD term.

Best banks for 1 year Term: It is one of the most popular term of the fixed deposit which many depositors go for. Going by the pattern of how the banks have structured their interest rate for various tenures it is appearing that most of them are providing their best interest rate for one year fixed deposits. So here is the list of the banks which are providing you the highest interest rate in this category. Bandhan Bank with 8% interest rate emerges on top as the highest interest rate provider which is closely followed by RBL Bank at second position with 7.75%. There is big gap when we go to third top bank in this category as it is Oriental Banks of Commerce with 7.3% interest however it is much higher than 7% what the most large banks are currently offering.

                              Top 7 banks with highest interest rate for FDs with 1 year term

Best banks for 2 years Term: After one year FDs the next tenure for which most of the banks are offering their highest interest rate is 2 years fixed deposits. The interest rates offered by the banks for 2 years tenure is very close to the highest interest rates of one years FDs. RBL Banks with 7.5% interest rate takes the first position while with 7.5% interest rate Bandhan Bank is the second highest interest rate provider in this category. There are 6 banks at the third position with 7.2% interest rate for their 2 years fixed deposits. So pick up the bank which suits you best and go for booking your deposits at the earliest.

Top 11 banks with highest interest rate for FDs with 2 yearr Ttrm

Best banks for 3 years Term: In the category of fixed deposits for 3 years tenure most of the banks are providing lower interest rates. There is only one exception as RBL Bank which is offering the interest rate of 7.7% after which there is a big gap. The second highest interest rate for 3 years tenure is being offered by India Post. It is closely followed by 5 banks which are offering an interest rate of 7.25%. These are still better rate than what the big banks are offering to their depositors.

Top 9 banks with highest interest rate for FDs with 3 years term

Best banks for 5 years Term: This is one of the most preferred longest tenure because it is used by many people for tax saving purpose as 5 years Tax Saver FDs come with deduction benefit under section 80C for investment upto Rs 1.5 lakh per financial year. The highest interest rate is currently offered by India Post which is 7.8%. The second position is taken by RBL Bank with 7.7%. There are 3 banks at the third position with interest rate of 7.25%. As interest rates are likely to fall further or remain low going forward it may make sense for you to lock in your deposits at the current higher rates.

Top 7 institutions with highest interest rate for FDs with 5 years term

#FD #FDs #FixedDeposit #FixedDeposits #InterestRate #RateCut #BestFDs

What to do with fixed deposits (FDs) while interest rate is falling?

Is it a right time to book FDs and what are your current alternatives?

There has been a continuous decline in interest rate of fixed deposit as banks have been reducing their fixed deposit rate especially after the latest beginning of repo rate reduction spree by RBI in January 2015. As a result fixed deposit interest rate which was hovering around 9.5% around till 2014 end has now already come down to around 7.5%. 

With adequate deposits banks will reduce rate in future also: However after the current surge of deposits in the banking system through the government's demonetization drive, banks are now flooded with low cost deposits. As they have enough deposits with them therefore to discourage depositors from making further deposits banks are bound to reduce their deposit rate significantly. If you have your FDs locked in a good interest rate it makes sense for you to continue with them. However if you have surplus funds to park or FDs which are maturing in near future then you would need to hurry and park your deposits at current interest rate because the interest rate is bound to go lower from the prevailing levels.

Advantage for senior citizens: Though, for senior citizen the government has announced a saving scheme which offers an annual interest rate for 8% for next 10 years. This scheme is available for deposits maxim up to Rs 7.5 lakh after which depositors can receive monthly interest in their account. However others will have to evaluate their options quickly as there are some small savings which are still offering higher rate but it would not be for too long as government is bound to reduce that rate sooner or later. 

( To get the best FD rate visit https://arthachakra.blogspot.in/2017/01/get-best-fd-rates-from-banks-even-while.html )

Government small saving schemes offering good interest rates: For the senior citizen the existing senior citizen savings scheme looks a better option to park their money if they do not mind locking their funds for 5 years as it would give them a higher interest rate of 8.5%. It also gives them income tax saving benefit under section 80 C. For others who are looking only for government backed fixed deposit option they can go for 5 year term deposit option from Post Office which is offering an interest rate of 7.8% p.a. which can be considered a quite high interest rate in the given circumstances. If you are ready to lock in your fund for next 5 years and get section 80C deduction benefit you can go for NSC (National Saving Certificate) which is offering an annualized interest rate of 8%. These all are small savings schemes of the government which frequently revises the interest rate. However the government has not gone for any reduction in current quarter which means that these rate would be available till March 2017.

Other bank FD options: However if you are looking for bank fixed deposits only then you can go with new banks like IDFC Bank and Bandhan Bank which are still offering an annual interest rate of 7.5% and 8% respectively on their fixed deposits of around one year term. However you will need to take a call soon because these rates will also fall sooner than later.

#FDs #FixedDeposits #Deposits #InterestRate #Interest #Rate #SeniorCitizen #Demonetisation

Should NRIs go for a home loan after recent interest rate cuts?

Higher exchange rate and low interest rate makes case for home buying especially for US based NRIs (Non Resident Indians)

After the government demonetisation drive Indian banks are flooded with low cost deposits which has made them to reduce interest rate in a big way. The biggest lender State Bank of India has gone for 0.9% rate cut in its one year MCLR which is an unprecedented rate cut. This has resulted in a situation where home loan rates have come down to the lowest level seen in last 6 years.

Besides the significant fall in interest rate there is a fall in Rupee against the USD and it is trading around INR 68.02 per USD as of January 2, 2017, which is not away from its lowest value of INR 68.78 per USD seen on 26 February 2016. This gives dual advantage of low interest rate and higher exchange rate to NRIs especially from those countries whose currencies have appreciated against rupee to go for a home loan for buying a home loan. 

Another additional reason for going for home buying spree is the government's attack on black money has affected correction in home prices in many places. Absence of cash component reduces the speculative demand in the market and its only the end user which look for buying in such market. Hence this reduction in demand forces home prices to come down.

All these favourable conditions make a strong case for you to go for buying your dream and more so if its intended for an end use in India.

#NRI #NRIs #NonResidentIndian #Homeloans #InterestRate #Demonetisation #Rupee #RBI #SBI #Loan #Homebuying #Ratecut

Interest rate falls: Is it a good time to prepay your home loan?

After big interest rate drop should you consider prepaying your home loan?

Whether you are a floating rate or fixed rate home loan borrower, it hardly matters, as such a huge interest rate reduction gives you a unique opportunity to accelerate your home loan repayment through partial prepayment.

After the government demonetisation drive and banks being flooded with deposits, the interest rate in India in general has witnessed an unprecedented decline. Home loans being the biggest liability of life for most of the people, everyone wants to pay it off as soon as possible. In such a scenario it makes sense for you to review your home loan repayment and check whether it suits you to make some partial prepayments. 

In case you are having a floating rate home loan then the chances are that you would automatically get the advantage of interest rate reduction. To introduce any reduction in bank's lending rate the bank has to reduce either the Base Rate or MCLR (Marginal Cost of Funds based Lending Rate) a new benchmark to which loans are now linked. The moment these benchmark rates are reduced by the lender a new borrower can get loan at new reduced rate. Besides this the interest rate of eligible existing floating rate borrowers are also reduced. Some borrowers, who have taken loan after March 2016 under the new MCLR system, will have to wait at least for a year when they can contact their lender and get their floating rate adjusted. Some old borrowers who have their floating rate home loan still linked to old Base Rate system should immediately contact their lender to get the advantage of the reduced rate by shifting their loan to new MCLR system. 

After any reduction in interest rate a lender typically does not reduce your EMI but it reduces the loan tenure. A fall in the interest rate reduces the interest amount included in your EMI and since the lender wants to keep to future EMI same therefore a higher principal amount goes towards loan repayment. With more amount going towards principal repayment the overall home loan repayment gets faster and as a result the tenure of the loan get reduced. However if you find your lender preferring to go for a reduced EMI then you would need to request it not to reduce your EMI in case you wish to prepay your loan faster and willing to pay the same EMI as earlier.

In case you do not find any reduction in your interest then you should consult your lender to know the reason. One of the reasons could be your existing home loan being linked to the old base rate system. You can request the lender to shift your home loan to new reduced rate by linking it MCLR, the new bench-marking system. For doing so you may be asked by the lender to pay a nominal one time fee for switching. Once lender accepts your request you would get the advantage of the reduced interest rate. However after this reduction make sure at least not to go for EMI reduction and keep the same EMI as it would help you prepay your loan fast as explained earlier. Moreover if you wish to make prepayment over and above this, then it makes sense for you to go for partial prepayment as there is no penalty on prepayment of floating rate home loans.

On the other hand if you have fixed rate home loan then you would need to calculate your net benefit for a prepayment as you would need to prepayment penalty which could be in the tune of 2-4% of the prepayment amount. Since there has been around 2% reduction in home loan rate in last 3 years and fixed rate home loan comes with a premium therefore it is more likely you would gain from making a prepayment even after paying a penalty. 

#Homeloans #Prepayment #loans #InterestRateCut #Repayment #Loan #Interest

Demonetisation effect: Gain from huge reduction in home loan interest rate

    After big reduction in home loan interest rate should you go for a home loan now?

India's central bank has been continuously reducing its policy rate since January 2015 and has gone for an overall reduction of 1.75% in its Repo Rate, a rate at which it lends to banks, from 8% to 6.25%. Transmission of any interest rate reduction by RBI to the end users, which are banks' borrowers, happens only when there is sufficient liquidity in the banking system. Lack of liquidity compels banks to compete for short term liquidity to meet their day to day cash requirements. As a result of too many banks chasing the limited liquidity, the short term interest rate increases. Hence, any reduction by the central bank in Repo Rate becomes ineffective. This lack of liquidity in the banking system was the reason why even after so many reductions in Repo Rate the benefit was not passed on to retail borrowers, who have taken loans like home loan, auto loan, personal loan and so on.

However now with the government's demonetization drive there has been a remarkable surge of liquidity in the banking system as bank are now flooded with low cost deposits in the form of current account and saving account deposits. This is the reason why some of them have already started reducing their lending rate by announcing reduction in their MCLR (Marginal Cost of Funds based Lending Rate), a benchmark to which interest rate of bank loans are now linked. These interest rate cuts are one of the biggest rate cuts seen in the recent past. It has almost taken the home loan interest rate to the lowest level seen in last 6 years. Therefore it may make sense for you to go for a home loan now if you have been waiting to buy your home for some time. 

In case you do not like fluctuation in interest rate and are willing to pay a little premium for a fixed rate home loan then also it may be a right moment for you to go for a fixed rate home loan and lock in the interest rate at prevailing low level. However if you wish to have one of the most competitive interest rates and are not uncomfortable with changes in the interest rate then you may go for a floating rate home loan. It would give you one of the lowest interest rate at any given point of time. If you want best of the both world then going for a hybrid home loan, which offers fixed but lowest interest rate for few initial years and then converts into a floating rate loan, could be a better idea. Hybrid home loans have made a come back with the country's biggest lender SBI offering a new hybrid home loan. Beside the lower interest rate advantage on home loan you would also get some good deals now in property market. There have been news of correction in many property markets due to government demonetisation drive. For an end user this could be an unique opportunity to own a home.

Should you go for the new hybrid home loan offered by SBI?

            Hybrid home loan is back with SBI offering a new one

With the dawn of the new year 2017 India’s biggest lender State Bank of India (SBI) has come up with hybrid home loans. Women borrowers have been given privileged treatment with lowest fixed interest rate of 8.5% p.a. for the first two years of the loan tenure. Other borrowers on the other hand have to pay a slightly higher interest rate of 8.55% p.a. for the same loan. The question which many borrowers have in their mind whether it is right for them to go for this hybrid home loan. Let us bring some clarity on this home loan and understand whether you should go for it.

How does a hybrid home loan work? A hybrid home loan is a loan that charges a fixed interest rate for initial few years after which the loan is converted into a floating rate loan. As suggested by the name, during the initial fixed rate period the interest rate remains unchanged. After completion of the initial fixed interest rate period the loan moves to a floating interest rate regime. The interest rate of a floating rate home loan is typically linked to a benchmark which is currently the MCLR (Marginal Cost of Funds based Lending Rate) for the banks. The lenders adds a pre-specified spread or margin over this benchmark rate to arrive at the final floating interest rate for the home loan borrowers. With interest rate movement in the economy whenever the lender decides to change the floating interest rate then all borrowers with floating rate loans get affected, sometime favourably as is the current case of falling interest rate and sometime adversely when interest rate is hiked. Borrowers have to pay the changed EMI accordingly. However in practice whenever the lender changes the interest rate it prefers to keep the EMI unchanged and only changes the tenure of the home loan. However it is done only till the time borrowers age remains within highest permissible limit till the closer of the home loan. Beside the new hybrid home loan SBI continues to offer the floating rate home loan as well, however at a slightly higher interest rate. For a floating rate home loan upto Rs 75 lakh the lender is charging an interest rate of 8.6% p.a. to its women borrower while for other borrowers it is charging 8.65% p.a.. For floating rate home loans above Rs 75 lakh it is charging its women borrowers an interest rate of 8.65% p.a. while 8.70% p.a. to others.

It works better during low interest rate period: Though fixed rate home loans offer a fixed interest rate for entire duration of the loan but it charges a big premium for this fixed commitment which makes it 2-3% costlier than the interest rate of a typical floating rate home loan. So effectively it takes away the low interest rate advantage for a marginal borrower who is looking for even small interest rate advantage. This is why during the low interest rate regime a hybrid loan becomes popular as it promises to lock-in the low interest rate at least for initial few years and that too on a very attractive interest rate. Often the hybrid loans offer an interest rate during fixed period which is better than even the prevailing floating interest rate which is also the case currently with the SBI home loan offer. 

Does interest rate outlook support your decision? Interest rates have been on declining spree for last 2 years since January 2015. At present the these loan rates have come down to the lowest level seen in last 6 years. If we have to gauge into the near future mostly upto an year or so then we can say with reasonable confidence that any further significant reduction from this level looks unlikely in near future. However the risk of an upward movement will always be there especially if there is any spike in inflation going forward. Therefore it would be a good call to go for a hybrid home loan especially for those people who have been waiting for an interest rate fall to go for their home buying as they can now lock their home loan interest rate at a very low level for at least next 2 years.