NEW DELHI: There is finally some good news for home loan seekers. Banks and HFC’s (Housing Finance Companies) have decided to cut their lending rates. The interest rates on home loans have constantly climbed for the past three years. Home loan rates are finally showing a downward trend after nearly three years, thanks to banks suddenly finding themselves flush with funds.

All the major players have already reduced the floating interest rate on home loans and are also providing sops to lure in more home loan customers. Allahabad Bank has cut its rate by 1 percentage point on its 25-year home loans. Now the effective rate is 12%. Bank of Baroda(BoB) has slashed its home loan rates by 50 basis points. A home loan up to Rs. 20 lakh from BoB will now be available at 11% while the interest rate on a home loan of amount above Rs. 20 lakh will be 11.25% after this cut.

HDFC Bank Ltd. another premier private sector bank in India has cut its floating interest rate on home loans by 0.25% under a special monsoon offer. The effective interest rate will now be 11% and to further spice up the offer, HDFC Bank has also lowered the processing fees on its home loans. ICICI bank and SBI are also in the process of reducing their home loan rates.

These cuts in home loan interest rates are only available to new home loan seekers. Existing home loan customer will have to wait for any reduction. They will benefit from any reduction only when the reference rate is lowered. As there is high liquidity in the system, it will definitely help in lowering of benchmark rates over the next couple of months.

The floating interest rate is tied to a benchmark reference rate, called the prime lending rate (PLR) or floating reference rate. Presently, none of the banks has lowered the reference rate, but they have increased the discount offered on such reference rates. This discount has been possible due to the surplus funds available with the banks, which have brought down the cost of acquiring funds. Banks are passing this benefit to fresh home loan seekers by offering them lowered floating rate home loans.