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Banks sweeten deal for existing customers

New borrowers to pay higher interest than existing ones, as spread for new home loans has been increased. 

“This is done to avoid old customers shifting their loans to other lenders. At the same time, they have also preserved their margins by keeping the new rates well above the base rate,� says Vineet Jain, founder and chief executive of LoanStreet.in talking to Business Standard a leading Financial News Paper.

If you had taken a home loan from State Bank of India (SBI) or ICICI Bank six months ago, you will have to pay lower interest than new customers. Though SBI cut its base rate by 40 basis points (bps) to 9.3 per cent, the spread for new home loans has been increased from five bps to 25 bps. This means someone who took a loan in the past six months will pay interest of 9.35 per cent, new borrowers will pay 9.55 per cent.

Similarly, ICICI Bank reduced its base rate by 35 bps to 9.35 per cent but increased the spread for home loans, making these expensive for new borrowers by 10 bps. This difference depends when a customer had taken a loan, as spreads keep changing. In 2011, for instance, SBI’s home loan rate was 1.25 per cent over the base rate.

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