English
English
English
RBI has revised rules for floating-rate home loans, allowing banks to reduce interest rates based on improved credit scores without waiting three years. Existing and new customers can now apply for rate cuts as soon as their credit score improves.
RBI Allows Instant Rate Cut for Existing Borrowers
New Delhi: If you're planning to take out a loan to buy a home, this news brings you great relief. The RBI has made significant changes to the rules governing spreads on floating-rate home loans. Under the new rules, banks can now offer loans at lower interest rates without waiting three years if their credit score improves.
When a bank offers a home loan, its interest rate is determined by two main factors: an external benchmark such as the RBI's repo rate or T-Bill yield, and the bank's spread. The spread covers credit risk and costs. Under the old rules, banks used to review the spread every three years. Now, the RBI has eliminated this lock-in period, allowing you to immediately benefit from the loan as soon as your credit score improves.
RBI vs SBI: Did India’s biggest banks clash over plagiarism in economic research reports?
Customers should first pay attention to their credit score. If your score has improved during the loan application or loan tenure, you can apply for a rate cut from your bank. The bank will evaluate your credit, and if your request is approved, it will reduce the interest rate by reducing the spread on your loan. The loan tenure may also be reduced, resulting in overall interest savings.
Home loans typically have long-term tenures and can range up to ₹50-60 lakh. In such a case, even a 0.25 percent reduction in the interest rate can translate into savings of thousands of rupees per month. If your credit score consistently improves, your total savings after a rate cut from the bank could be even greater.
According to the new RBI rules, existing customers will have to personally approach the bank to request a rate cut. Previously, only new customers benefited from the rate cut immediately, while existing customers had to wait three years. Now, all customers will have equal opportunity. As soon as their credit score improves, they can immediately avail of a loan at a lower interest rate.
This change by the RBI will make home loans more affordable and provide direct financial benefits to long-term borrowers. This change is especially important for those whose credit scores have recently improved. Paying attention to your credit score now can result in significant savings in the total cost of the loan.
