Home Loan Rates – Customers Spoilt for Choice

Published by Virtual India Index on December 3, 2009 – 6:02 pmOne Comment

In the last few months lot of banks have introduced dual rate home loan schemes to woo the customers who are spoilt for choice. Banks are going all out to grab the maximum share of the customer’s wallet by introducing these enticing schemes. There are primarily few reasons for why banks are coming out with these attractive offers:

  1. Banks are flush with liquidity; but at the same time the demand for credit has fallen a lot. Instead of parking the money with the RBI under the Reverse Repo window they would prefer to lend it to the customers.
  2. As the fears of the slowdown recede and economic outlook improves the real estate sector is picking up. The real estate sector was one of the hardest hit sectors due to the sub prime crisis,
  3. Increasing competition among banks and housing finance companies is forcing each bank to come out with an offer that is better than the existing home loan offers in the market. Most banks want to increase the share of retail assets among their overall portfolio.
  4. Diwali and year end festive season. Normally during the festive season the demand from customers increases. It is considered auspicious to buy assets during the festive season.

Due to the above reasons lot of banks have come out with dual rate home loan schemes. Under these schemes the interest rate is fixed for the initial few years and it becomes floating for the remaining tenure of the loan. The floating rate depending on the Prime Lending Rate (PLR) of the bank. This means that if the Bank PLR goes up the interest rate on the home loan will move up and if the Bank PLR is revised downwards then the home loan rate will also move down along with the PLR. Due to the uncertain economic environment customers are hesitant to go for home loans. Customers are not too sure of the future economic scenario and the direction of interest rates in the near term. So banks are coming out with these dual rate home loan schemes so that the customer can be assured that his EMI would stay fixed atleast for the first few years.

Even though in the home loan offers of most of the banks the interest rate is fixed for the first few years is fixed; the other terms and conditions like the loan tenure, the minimum and maximum amount, pre-payment clauses etc are different in case of each bank. Through this article we are trying to make a comparison of the existing home loan offers of few banks so that selection becomes a little easy for the customer. However the customer needs to check with the bank for the final terms and conditions as these offers may be subject to change.

SBI Bank HDFC Punjab National Bank Axis Bank Canara Bank LIC Housing Finance
Product Name SBI Easy Festival Bonanza Offer Power Plus Scheme New Housing Loan Package Fix-O-Floaty
Year 1 Rate 8% 8.25% upto 31st March 2012 8.50% 8% 8.00% 8.9%
Year 2 Rate 8.5% 8.50% Floating 9.00% 8.9%
Year 3 Rate 8.5% 8.50% Floating 9.00% 8.9%
Year 4 Rate Floating or Fixed Floating Floating 9.00% Floating
Year 5 Rate Floating or Fixed Floating Floating 9.00% Floating
Year 6 Onwards Floating or Fixed Floating Floating Floating Floating
Minimum Loan Amount
Maximum Loan Amount Upto 50 Lakhs Upto Rs 30 Lakhs Upto 30 Lakhs Upto 30 Lakhs Upto Rs 75 Lakhs
Processing Fees Rs 2000 for Rs 10 Lakhs Loan Waived Off
Margin Money 20% 15% 15% for loans upto 20 Lakhs 15% 15%
Valid Upto 31st March 2010 31st March 2010 31st December 2009 10th December 2009 31st December 2009

After having a look at the comparison let us have a detailed look at some of the home loan offers of some of the banks.

State Bank of India

SBI has come out with 3 home loan offers.

SBI Hi-Five Loan

  • Under this home loan offer the maximum amount of loan given is 5 Lakhs.
  • The maximum tenure of the loan is 10 years.
  • Under this scheme the interest rate is fixed at 8% for the first 5 years.
  • Thereafter the interest rate becomes floating at 2.75% below SBAR (State Bank Advance Rate) or fixed at 1.25% below SBAR.
  • The processing fee under this loan upto Rs 5 Lakhs is Rs 1000.
  • This scheme is valid upto 31st March 2010

SBI Easy Home Loan

  • Under this scheme home loan can be availed upto a maximum of Rs 50 Lakhs.
  • The interest rate for the 1st year is fixed at 8%.
  • The interest rate for the 2nd and 3rd year is fixed at 8.5%.
  • After the 3rd year the interest rate becomes floating at 2.75% below SBAR (State Bank Advance Rate) or fixed at 1.25% below SBAR (State Bank Advance Rate) depending on the customer’s choice selected at the time of sanction of the loan. The fixed rate option comes with a reset clause of 5 years.
  • The processing fee for loan amount upto Rs 5 Lakhs is Rs 1000 and may go upto Rs 7000 for a loan amount of upto Rs 50 Lakhs. This depends of the loan amount.
  • This scheme is valid upto 31st March 2010

SBI Advantage Home Loan

  • Under this scheme home loans above Rs 50 Lakhs can be availed.
  • The interest rate for the 1st year is fixed at 8%.
  • The interest rate for the 2nd and 3rd year is fixed at 9%.
  • After the 3rd year the interest rate becomes floating at 1.75% below SBAR (State Bank Advance Rate) or fixed at 0.75% below SBAR (State Bank Advance Rate) depending on the customer’s choice selected at the time of sanction of the loan. The fixed rate option comes with a reset clause of 5 years.
  • The processing fee for loan amount of Rs 50 Lakhs is Rs 8000 and may go upto Rs 20,000 for a loan amount of above Rs 5 Crores. This depends of the loan amount.
  • This scheme is valid upto 31st March 2010

Housing Development Finance Corporation (HDFC)

  • Though a late entrant to join the price war; the market leader has finally announced the fixed-floating home loan offer to arrest its falling market share.
  • HDFC has announced that it will offer home loan at 8.25% till March 2012. The loan has to be taken before 31st March 2010.
  • From 1st April 2012 the customer will move to a floating rate. The floating rate charged will be 500 basis points below the Prime Lending Rate (PLR). 100 basis points is 1%.

LIC Housing Finance (LIC HF)

  • LIC Housing Finance has introduced a dual rate home loan scheme under the name ‘Fix-o-Floaty’.
  • Under this scheme the interest rate is fixed at 8.9% for the first 3 years for home loans between Rs 30 Lakhs upto 75 Lakhs.
  • After 3 years the customer will move to floating rates prevailing at that time.

Punjab National Bank (PNB)

  • Punjab National Bank (PNB) has announced a Festive Season Bonanza-2009 for housing loans and car loans
  • Under this scheme PNB is offering home loans upto Rs 30 Lakhs at a discounted rate.
  • The interest rate for the first 3 years is fixed at 8.5%.
  • After 3 years the customer will move to floating rate. The floating rate will be 2 – 2.5% below the Bank Prime Lending Rate (BPLR).
  • Under this scheme the bank has also waived off the processing fee and the documentation fee.

Canara Bank

  • Canara Bank is offering dual rate home loans under the New Housing Loan Package
  • Under this package the interest rate is fixed for the first 5 years for loans upto Rs 30 Lakhs.
  • In the 1st year the interest rate is 8% and for the next 4 years (2nd year to 5th year) the interest rate is fixed at 9%.
  • After 5 years the customer moves to floating rate which is 2.5% below the Bank Prime Lending Rate (BPLR). But the floating rate is subject to a minimum of 10%.
  • The scheme is valid upto 31st December 2009.

Axis Bank

  • Axis Bank has launched a dual rate home loan scheme under the name “Power Plus Scheme”
  • Under this scheme the interest rate is fixed for the 1st year at 8% and thereafter it becomes floating. The floating rate charged will be 3.50% below the Mortgage Reference Rate (MRR).
  • The bank is offering loans upto 30 Lakhs under this scheme.
  • The margin requirement is 15%.
  • The scheme is valid till 10th December 2009.
  • The bank has waived off pre-payment charges under the scheme.

We have got all the above information from the websites of the respective banks. However customers are advised to check with the banks for the final rates and other terms and conditions as these may be subject to change.

While the banks are fighting hard to win every additional customer; the customers are having a merry time choosing from the multiple options that they have on offer. A customer should compare all the options available and study the pros and cons of each offer and finally select the offer that best suits his requirement; after all buying that dream home is the biggest financial decision of their lives for lot of us. So Happy Home Loan Shopping!

This article is written by Gopal Gidwani!

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