This festival season may turn out to be a very happy one for people planning to own a house as many of the leading banks are offering reduced interest rates to attract customers. Led by the country’s largest lender, the State Bank of India, many other HFCs have initiated what is being seen as a move to attract more home loan customers across the nation.
The move is a direct fallout of the RBI slashing its Statutory Liquidity Ratio (SLR) by one per cent, which has prompted the banks to follow suit. This has several implications for new as well as existing home loan customers and in the long run is expected to revive activity in the real estate segment which has witnessed a slowdown in the last three quarters.
Ideal conditions for a Home Loan
New Customers
The rate cut by SBI is a significant move in the right direction as it will certainly spur other public sector banks as well as private banks and financial institutions to jump into the fray by cutting their interest rates. SBI’s home loan rate has been cut to 10.25 per cent from the existing 10.50 per cent for loan amounts below Rs 30 lakh, whereas the loan between Rs 30 lakh and Rs 75 lakh will have interest at the rate of 10.40 per cent. The repayment period for home loans has been extended to 30 years, or 70 years of age, whichever is earlier.
This SBI move has resulted in the Union bank of India and the Indian Overseas Bank following suit.
The SBI’s subsidiary banks such as the State Bank of Bikaner and Jaipur have introduced other attractive options on top of the the rate cuts, such as an additional 25-point reduction of the basis points for online applicants.
Andhra Bank is also expected to make a similar announcement in a few days and this will intensify the race. This means by the end of next month most banks and HFCs will be offering the best possible home loan rates seen in a while, making it the ideal time for customers to realise their dream home. The rate war will benefit the customer.
The possibility of portability
Existing Customers:
For existing customers too, the period is ideal to switch over to the lower interest home loans on offer.
The National Housing Bank, the regulatory authority for home loans, has made things easier by declaring that it will now be possible for existing home loan customers to easily switch banks for availing lower interest rates without penalty.
Those who had benefited from the dual rate policy of initial floating and subsequent fixed rates by getting home loans at 8 per cent about two years back were stuck at a subsequent fixed rate of 11.5 per cent. For such borrowers this is the ideal time to switch to lower interest rate loans without any prepayment penalty charges as the portability of loans has been eased by the National Housing Bank.
Switching Policies
There are quite a few innovative and attractive schemes being floated for home loan conversion. SBI has announced a 1-per cent charge for reprocessing and switching of home loans for existing customers. Some banks also levy a fixed processing fee of Rs 5,000-Rs 10,000. For taking over home loans from other banks the processing fee charged is a maximum of Rs 10,000 by SBI and thus other banks will be forced to declare similar fee structures in order to att-ract existing customers into their fold.
Points to consider before migration
Despite the hype surrounding the wonderful new rates for home loans available in the market currently, existing customers should carefully evaluate their options before migrating to such loans.
Here are few considerations before switching:
* A difference of less than 1 per cent may not be beneficial as the same would be negated thro-ugh processing fees and legal charges.
* A 75 basis point reduction in the home loan rate translates into a reduction in EMI of about Rs 2,000-Rs 3,500 for loans ranging between Rs 30 lakh and Rs 50 lakh with a repayment period of 15 to 20 years.
* Migrating the home loan towards the end of the repayment tenure is not in the interest of the customer as the interest for the entire period would have been already paid for in the initial years.
* Banks and HFCs have their own policies for taking over loans from other institutions with respect to eligibility which must be checked before applying for the switch.
The host of offers being rolled out by the banks will have a significant effect on the home loan trend in the nation. This is in line with the directive of the finance ministry, which had urged all financial institutions to reduce the EMI burden for home loan customers as it will free up money for further purchases which is essential to spur economic activity in the nation.
Adhil Shetty is CEO of Bankbazaar.com