Prabhakar Sinha/TNN

New Delhi, Feb 3: If fresh home loan borrowers had reason to celebrate on Saturday when State Bank of India (SBI) cut its rate to 8%, existing borrowers too can look forward to paying lower EMI very soon.

On Monday there were strong signals of public sector banks cutting their prime lending rates (PLR) in response to further prodding from the government - this time in the form of Pranab Mukherjee - to cut interest rates. As floating home loan rates are tied to PLR, any cut in PLR will mean lower rates for existing customers too.

Banks like Uco Bank and Corporation Bank have already announced cuts in PLR ranging from 0.75 to one percentage point and others have indicated they are likely to do so within a week. SBI chairman O P Bhatt has also indicated that the bank will cut its PLR soon. So, it’s a question of time before loan takers from PSU banks get relief on their EMIs.

But what about those who've borrowed from private sector banks like ICICI or HDFC - who between them have more than half of the home loan market - and are currently paying rates of 11-13%? They need not despair. It's likely that these banks too will cut interest rates.

But if they don't, existing borrowers could use the lower rates being offered by public sector banks to shift. Even if they have to cough up the usual pre-payment charge of 2% of the outstanding amount, they would still benefit significantly from such a shift. Someone with a Rs 50-lakh loan, for instance, could save more than Rs 50,000 in the next 12 months alone.

Home loan rates may fall to 7% by April

NEW DELHI: Most analysts and banking experts agree that interest rates in the home loan segment could fall to as little as 7% by March-April.

This makes sense given the RBI's recent projection that inflation would be down to below 3% by March. So, if you are now paying 12% and shift to 7%, the net savings in one year would be almost Rs 1 lakh.

Even those with loans from the public sector banks would stand to gain by shifting to the new scheme if they are paying rates of 10% or more. In their case, the one-time charge for the shift would be 1.25-1.5% rather than the 2% applicable when you shift from one bank to the other. Waiting for a few weeks before you decide to switch also makes sense for another reason. While SBI is offering 8% today, that rate will stay fixed for one year. If the rate comes down further, as expected, you would end up locked-in at 8%.