HDFC raises adjustable home loan rate: What this means for existing and new borrowers

NEW DELHI: Mortgage lender Housing Development Finance on Sunday raised its benchmark retail prime lending rate (RPLR) by 5 basis point (bps), on which its adjustable-rate home loans are benchmarked,with effect from May 1, 2022. This implies that HDFC’s adjustable-rate home loans for customers with a credit score of above 750 will now be 6.75 per cent versus 6.70 per cent earlier.
On a 15-year loan for Rs 1 crore, a 0.05 percentage point ( 5 basis point) increase would result in EMIs going up by Rs 400 every month.
The rates for new borrowers range between 6.70 per cent and 7.15 per cent, depending on credit and loan amount.
An adjustable-rate home loan (ARHL) is a floating or a variable rate loan, which means that the interest rate in an ARHL is linked to HDFC’s benchmark rate i.e, RPLR, so any movement in HDFC’s RPLR will lead to an equal hike in home loan rates for existing customers.
Last month, SBI and other lenders raised benchmark lending rates, pushing EMIs for the existing customers. While SBI increased its MCLR by 10 basis points, with effect from April 15, Kotak Mahindra Bank, Bank of Baroda and Axis Bank also hiked their MCLR by 5 basis points. The MCLR is a benchmark interest rate, which is the minimum rate at which banks are allowed to lend. Most loans are linked to the one-year MCLR. This implies that retail loans for homes, cars, or personal could go higher, and will also affect your Equated Monthly Installments (EMIs).
Banks have hiked lending rates for the first time in around three years, after the monetary policy committee of the Reserve Bank of India (RBI) said on 8 April it will now focus on gradual withdrawal of accommodation. This also means that the regime of lower lending rates, which borrowers were enjoying since 2019 may soon come to an end.
Unlike banks that have to mandatorily benchmark their home loans to the repo rate or RBI's treasury bills, housing finance companies have to link theirs to prime lending rate.
“This is a good time to understand home loan benchmark interest rates. The cheapest home loans today are linked to the repo rate. Repo loans are provided only by banks. Non-banking institutions benchmark to their prime lending rate. Bank loans taken before October 2019 are linked to MCLR and Base Rate. Borrowers must understand the differences between these benchmark and how they are impacted by them. As such, rates are expected to increase in this fiscal, and borrowers must evaluate their options including refinancing to any benchmarks that help reduce their interest," said Adhil Shetty, CEO, BankBazaar.
"Typically in a rising rate environment, lenders keep the EMI same and increase the loan tenure to account for higher interest burden. However, certain long-tenor loans, such as home loans, where increase in tenor may not be possible, the lenders will have to increase the EMIs also, which will increase the debt servicing burden for the borrowers. "This could mean lower disposable incomes leading to adverse impact on consumption and demand. Higher EMIs could also result in increase in delinquencies for lenders," said Anil Gupta, Vice President & Co-Group Head, ICRA.