SBI Home loan – maxgain : Linkage with Base Rate over the tenor of the loan

POSTED BY ON September 8, 2012 4:50 pm COMMENTS (6)

Dear friends,

I am planning for home loan from SBI.. as i see interest rate is 10.25% which looks minimum. However I want to understand the term : Linkage with Base Rate over the tenor of the loan

They say Base Rate= 10.00% p.a and Interest rate is 0.25% above Base Rate.

Who fixed Base Rate= 10.00% p.a.. RBI(i think so..) or SBI itself.

Again, IS THIS 0.25% above Base Rate IS FIXED FOR ENTIRE TENURE OF MY LOAN OF 20 YEARS ? or SBI CAN CHANGE THIS ?

If Base rate is fixed by RBI, will this Base rate will come down by same amount if there is a rate cut by RBI ?

(e.g If RBI cut rate by 0.5%, Interest rate should be 9.75%)

Regards

ashish

6 replies on this article “SBI Home loan – maxgain : Linkage with Base Rate over the tenor of the loan”

1. ashish says:

Dear Ashal,

that’s great, now I’m clear.

One direct question.. Do you think it is good idea to take SBI maxgain home loan as Interest rate is 0.25% above Base Rate. Do we have something better ?

Also, I understand old SBI customers are paying higher interest rate than 10.25%.. how true is this and if yes why ?

Regards
ashish

2. ashish says:

Dear Ashal,

that’s great, now I’m clear.

One direct question.. Do you think it is good idea to take SBI maxgain home loan as Interest rate is 0.25% above Base Rate. Do we have something better ?

Also, I understand old SBI customers are paying higher interest rate than 10.25%.. how true is this and if yes why ?

Regards
ashish

The current spread of 0.25% above base rate is the least possible spread. so it’s the right time to lock this spread in our favor. As & when SBI ‘ll start reducing it’s base rate, you ‘ll get the benefit of reduction in interest.

The old customers are paying higher rate due to higher spread from base rate. The same spread can be converted to current 0.25% spread by paying a one time conversion fee of 1% of loan amount + service tax there on.

Thanks

Ashal

3. ashish says:

Dear Ashal,

thanks for clearing my doubt.

may i know what is relation between base rate & RBI lending rate(or something related)..

what happens when we hear RBI has reduces interest rate ? (say if RBI cut interest rate by 1%, what will be new base rate ?.. is it only a decision of SBI to change base rate or not ?

I came to know, Banks do not reduce interest rate for existing customer in case of RBI rate cut by same amount. However for new customer, they give loans on lower rate..

Regards
ashish

1. Dear Ashish, the RBI rate, you are referring to are given below.

1. Repo Rate – It’s the rate at which banks in India borrow money from RBI.
2. Reverse Repo Rate – It’s the rate at which, banks park their surplus money with RBI.

Any reduction by RBI in the above rates, indicates that the over all rates in the economy are going downwards.

So in a correlation, as & when RBI ‘ll reduce it’s rate, other banks ‘ll follow the path & ‘ll reduce it’s Base Rate.

Thanks

Ashal

4. Dear Ashish, The base rate is fixed by SBI. In future, this Base rate may go either way, Up as well as down. We do not know precisely which way it may go but looking at the present situation, upward movements seems unlikely & downward one moves very likely (just 2 days ago, deposit rates were slashed by SBI).

All over the term of your loan, this spread ‘ll remain there i.e. base rate + 0.25% ‘ll be your actual loan rate.

SBI may change Base rate but can’t change this spread with out your consent.

RBI does not fix this base rate.

Thanks

Ashal

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