January 17: The interest rate of home loans provided by commercial banks to the general public for building and buying houses has reached more than 9 percent per annum.

The banks had increased the interest rate to collect deposits amid liquidity crisis which resulted in an increase in base rate and the interest on loans.

The interest rate published by commercial banks from mid-January to mid-February shows that the annual interest on home loan has been maintained between 9 to 15.50 percent. Nepal Bank Limited is the one that offers the cheapest interest rate on home loans. Banks set the interest rate by adding a premium to the base rate.

According to the instructions of NRB, the banks have been publishing the interest rates that are fixed and subject to change on the basis of the base rate for various schemes. Under the fixed interest rate plan, the same interest rate is maintained throughout the loan period. In the interest rate taken on the basis of the base rate, the interest rate increases every quarter when the base rate increases and decreases when it decreases. The premium that banks add to the base rate is fixed at the time of loan approval and cannot be changed.

Agriculture Development Bank Limited has been providing home loans at a minimum fixed interest rate of 8.95 percent. Similarly, Laxmi Bank and NIC Asia Bank have set the highest interest rate of up to 15.99 percent under the fixed interest rate for home loan scheme.

Most of the banks have said that a premium of up to 6 percent will be added to the loan plans that change based on the base rate.

Out of the 22 commercial banks that are currently operating, 15 have announced a premium of up to 6 percent for home loans. Nepal Bank is giving home loan at the lowest minimum premium of 1 percent.

According to the instructions of NRB regarding interest rates, banks should publish the interest rate applicable every month on the last day of the previous month. Banks should mention both variable and fixed interest rates on loans of periodic nature while publishing interest rates.

In a fixed interest rate scheme, the banks cannot change the interest rate fixed throughout the loan period. However, on the basis of a written agreement with the customer, there is a provision to change the interest rate for the first time in 7 years of loan disbursement and thereafter every 5 years.

Similarly, in the variable interest rate loan plan, there is a provision for banks and financial institutions to set the base rate by adding 0.75 percent profit to the cost of their capital and to determine the interest rate by adding a certain percentage premium to it. Every quarter, when the average base rate of the bank decreases, the interest rate on loan automatically decreases and when it increases, the premium rate cannot be changed.

In the directive, the banks should clearly mention the premium rate to be added to the base rate in the 'offer letter' of the loan given to the borrower. For such premium loans, there is a provision that the premium rate cannot be set higher than the published premium rate at the time of receiving the application. There is a provision that banks should publish the premium rate for loans along with the interest rate on deposits for the next month at the end of every month.