The National Housing Bank (NHB) on Thursday reduced interest rates under its special refinance scheme for poorer people in urban areas by up to 100 basis points (bps). It has said it will also provide long-term fixed rate refinance at affordable rates for construction or purchase of houses in urban areas to poor people, including those in the informal sector.
“NHB recognises the need to create 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,” said R V Verma, chairman and managing director.
Interest rates on NHB’s refinance would be nine per cent per annum for loans up to Rs 2 lakh against the present 10 per cent, and 9.25 per cent per annum for loans of Rs 2-5 lakh, against the present 10 per cent. Prepayment under the scheme is allowed without a penalty.
“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,” said Verma.
NHB says it will provide refinance assistance to primary lending institutions at lower rates of interest for the long term in respect of their housing loans of up to Rs 5 lakh to target segments such as households having a monthly income not exceeding Rs 15,000. Refinance will be extended for tenures ranging between five and 15 years at fixed rates.
“Banks and housing finance companies extending loans under NHB’s special refinance scheme and also covered by the credit guarantee, under the Government of India-supported Mortgage Credit Guarantee Fund Trust, will have significant credit risk mitigation, better asset-liability matching, and lower refinance rates,” added Verma.
