NHB cuts interest rate on refinance by up to 1%

Housing finance industry regulator, National Housing Bank (NHB) today slashed interest rate up to 1% on refinance to banks and housing finance companies to promote affordable finance for low income group dwelling in urban areas.

It has now decided to apply a much lower refinance rate by reduction in its lending rates by as much as 0.75 to 1% under this special refinance scheme for urban low income housing (LIH), NHB said in a statement.

Refinance will be extended for tenures ranging between 5 and 15 years at fixed rates. Interest rates on NHB's refinance would be 9% against existing 10% for loans up to Rs 2 lakh.

For loans between Rs 2 to 5 lakh, the rate would be 0.75% lower at 9.25%.

Prepayment under the scheme is also permissible without attracting any prepayment levy, it said.

The regulator also said the primary lending institutions are expected to pass on the benefit of reduced refinance rates to the ultimate borrowers by extending housing loans for longer tenure at lower fixed rates, thus enhancing affordability.

Other new features of the scheme are that the NHB will also provide long-term fixed rate refinance at affordable rates of interest for construction or purchase of houses in urban areas to people in the lower income segments, including those engaged in the informal sector, it said.

This scheme of NHB is expected to have valuable synergies with the recently constituted Mortgage Credit Guarantee Fund Trust, under which individual retail loans up to Rs 5 lakh will be covered by the guarantee of the Fund Trust.

Thus, it said, the banks and housing finance companies extending loans under the NHB's special refinance scheme and also covered by the credit guarantee, under Government of India supported Mortgage Credit Guarantee Fund Trust, will have significant credit risk mitigation, better asset- liability matching, and lower refinance rates.

The combined effect of all these features will result in substantial rate reduction for the ultimate borrowers, enhancing affordability, it added.

NHB recognises that there is need for creating a long-term fixed interest rate market for housing, particularly for the low and moderate income households who may not be able to absorb the volatilities in the interest rates under the floating regime.

"Under the Scheme, NHB would provide refinance assistance to primary lending institutions (Banks, HFCs and other lending institutions in cooperative sector) at lower rates of interest for long term in respect of their housing loans upto Rs 5 lakh extended to the target segments viz, households having monthly income not exceeding Rs 15,000," it said.