HDFC Bank has increased its repo-linked home loan interest rates by 10-15 basis points in March. The private sector lender is now offering home loans at 9.05% to 9.8% interest.

Since January, HDFC Bank has gradually increased the home loan interest rates by 35 basis points. One basis point is one hundredth of a percentage point.

In what may sound surprising to many, HDFC Bank has increased its home loan rates even as RBI has not raised its repo rate for several months. But, why? Let’s find out.

Generally, home loan interest rates rise only when the repo rate is also increasd by RBI. However, it is different in the case of HDFC Bank.

First, the above-mentioned increased rates are applicable to new borrowers only. Existing home loan borrowers of HDFC Bank will not be impacted by the rate hike.

Second, the bank says on its website that its merger with HDFC on July 1, 2023 is the reason behind the rate hike for new borrowers. With the merger, the bank’s home loan rates are no longer linked to retail prime lending rate (RPLR).

A home loan interest rate can also go up due to change in spread. The spread is calculated based on loan size, credit score and income source of borrowers. There are three components of a repo rate-linked interest rate: repo rate, operating cost spread, and the credit risk premium. Out of the above three components, operating cost spread can be revised or reset only once every three years after the contract is signed with a borrower. However, the spread can be revised for new borrowers any time.

Prior to merger with HDFC Ltd, the bank was selling home loans aggressively at 8.30% to 8.45%. Post merger, the bank has reportedly faced a rise in cost of funds, leading to increase in the interest rates

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HDFC Bank Home Loan Interest Rates

As per HDFC Bank website below are the existing interest rates of Home Loan:

The interest rate hike by HDFC Bank will impact new borrowers as they will have to pay more.