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Recently, both HDFC and ICICI have announced end to teaser rate Home Loans. This would have been dissapointing to investors looking for a new home loan. After that announcement, comes another dissapointing one - HDFC has increased interest rates for all its existing floating rate customers by 75 basis points (100 basis points = 1%) while for new customers the increase in rates will be 50 basis points.

For existing customers, the new rates will be their respective current rates plus 75 basis points, while new customers will get loans at 9.5-10 % per annum, depending upon the loan amount. For existing HDFC customers, this hike in home loan rates will translate into additional EMI outgo of about Rs 51 for every Rs 1 lakh worth of loan of 20 years tenure. Likewise for every Rs 1 lakh worth of loan for 15 years, the additional EMI outgo will be approximately Rs 48 and for 10 years, the corresponding amount is about Rs 45. In some cases, instead of increasing the EMI amount, the number of EMIs could be raised upon bank discretion.

This is a very sharp increase in home loan interest rates and will definitely reduce transactions in real estate which is already going through the roof. In a way it is good as it will bring down the real estate prices. RBI on the other hand is encouraging banks to reduce home loan rates and increase bank term deposit rates. Banks on the other hand is keeping the difference between term deposit rates and home loan rates high to mint more money. Real Estate sector needs a revolutionary change just like Telecom sector so that housing can be provided to masses.

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