Home loan from HDFC Bank gets costlier after gradual increase in repo-rate linked interest rate

If you’re planning to take a loan to buy your dream house, then here’s some important information. Since January last year, India's largest private sector lender HDFC Bank has increased its repo rate-linked home loan interest rate gradually. This increase in rates comes even as the Reserve Bank of India has kept the repo rate unchanged since April last year. The rate increase will, however, apply to only newer loans and the existing loans will be unaffected

HDFC Bank's home loan

The repo-rate linked home loan rates should always move in tandem with changes in the RBI's repo rate. HDFC Bank's lowest interest rate on a Rs 50 lakh home loan was 8.35% in January. Currently, the lowest rate is 8.70%. This means, in a span of three months, the lender has effectively increased home loan rates by 35 basis points (bps).

“HDFC Ltd was selling home loans aggressively at about the 8.30% to 8.45% range just a few months prior to the merger with HDFC Bank. Post-merger, HDFC Bank has been increasing the rates at portfolio level, citing a rise in cost of funds,” Vipul Patel, founder of MortgageWorld, a loan consulting firm told Moneycontrol.

Also Read: HDFC Bank hikes MCLR by upto 10 bps; here's how your loan EMIs will be impacted

Along with HDFC Bank, other private lenders like Axis Bank and Karur Vysya Bank have also increased their effective new home loan rates by 5 bps this year. In January, the lowest home loan rates at Axis Bank for a Rs 50 lakh loan was 8.70% and Karur Vysya Bank was 8.95%. From March, these rates went up to 8.75% at Axis Bank and 9% at Karur Vysya Bank.

However, nationalised banks like State Bank of India, Bank of Baroda, and Bank of India have not increased their rates.

Impact of change in home loans

Moneycontrol quoted home loan experts and mentioned that the change in interest rate could be due to the change in spreads. The spreads come into play while calculating the total cost of the repo-rate linked interest rate.

There are three components in a repo-rate linked loan. This includes the repo rate, the operating cost spread and the credit risk premium. Out of this, once the home loan contract is signed, the operating cost spread can be reset only once in three years. However, the spread can be revised for new borrowers.

“This spread includes mainly the cost of funds, cost of overheads, margin for revenue generation/business (profitability),” Patel told Moneycontrol. He further added that these may vary from bank to bank and are generally decided by the asset liability committee.