In the last few months keeping in mind the slowdown in credit growth and the excess liquidity in the financial system lot of banks have introduced dual rate home loan schemes (also known as Fix-O-Floaty Home Loan Schemes or Teaser 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 or offers. There are primarily few reasons for why banks are coming out with these attractive offers:
1. Banks have lot of liquidity; but at the same time the demand for credit has not grown much. 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. Cut throat competition among banks and housing finance companies is forcing each bank to come out with an innovative 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. Upcoming Diwali and Year end Festive Season: Normally during the festive season the demand for loans 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 depends on the Base Rate of the bank. This means that if the Bank Base Rate goes up the interest rate on the home loan will move up and if the Bank Base Rate is revised downwards then the home loan rate will also move down along with the Base Rate. Due to the uncertain economic environment customers are hesitant to go for home loans. 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 during these times of uncertainity.
Even though in the home loan offers of most of the banks the interest rate is fixed for the first few years; 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||UCO Bank||Corporation Bank||LIC Housing Finance|
|Product Name||SBI Easy||Dual Rate Product – 4||PNB Festival Bonanza Offer 2010||Festival Bonanza Offer||Corp Home Smart||Advantage – 5|
|Year 1 Rate||8%||8.5% upto 31st March 2011||8.50%||8.25%||8.25%||9.25%|
|Year 2 Rate||9%||9.5% upto 31st March 2012||8.50%||8.75%||9.25%||9.25%|
|Year 3 Rate||9%||Floating||8.50%||9.00%||9.25%||9.25%|
|Year 4 Rate||Floating or Fixed||Floating||Floating||Floating||Floating||9.25%|
|Year 5 Rate||Floating or Fixed||Floating||Floating||Floating||Floating||9.25%|
|Year 6 Onwards||Floating or Fixed||Floating||Floating||Floating||Floating|
|Maximum Loan Amount||Upto 50 Lakhs||No Loan Amount Limit||Upto Rs 50 Lacs||Upto 1 Crore||Upto 50 Lacs|
|Processing and Documentation Charges||Rs 7000 for Rs 10 Lacs – 50 Lacs Loan||Waived Off||Waived Off|
|Margin Money||20%||15% for loans upto 20 Lakhs|
|Valid Upto||30st Sep 2010||Not Specified||31st December 2010||31st December 2010||31st December 2010||Till Further Review|
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) Easy Home Loan Scheme:
• SBI has introduced this scheme for Home Loans upto Rs 50 Lacs
• Interest rate is fixed at 8% for the 1st Year and 9% for the Second Year and the 3rd Year.
• After 3 years the customer can opt for a fixed rate or a floating rate and accordingly the interest rate will be revised by the bank.
• SBI Bank has a reach of more than 12000 branches nationwide making it easier for the customer to approach the bank in any part of the country.
Punjab National Bank (PNB) Festival Bonanza Offer 2010 for Housing Loans and Car Loans
• The “PNB Festival Bonanza Offer 2010” is in continuation of several measures initiated by the bank in the recent past to make its retail lending schemes ‘Customer Friendly’. The scheme has been launched on 18th August 2010 as per the press release from the Bank.
• Under this scheme PNB Bank is offering Home Loans of upto Rs 50 Lacs at a fixed interest rate of 8.5% for the first 3 years.
• The Bank has also fully waived off the upfront Processing Fee and Documentation Charges
• The margin for home loans upto 20 Lacs has been reduced to 15%.
• The scheme is valid till 31st December 2010
UCO Bank “Festival Bonanza Offer”
• On 6th September UCO Bank has launched the “Festival Bonanza Offer” for Home Loans, Trader Loans, Two Wheeler Loans and Car Loans.
• For Home Loans the interest rate is fixed for the first 3 years at 8.25% for the 1st Year, 8.75% for the 2nd Year, 9.00% for the 3rd Year.
• The Processing and Documentation Charges have been waived off completely.
• For the above interest rates the minimum loan tenure should be 5 years and the upper loan amount ceiling is upto 1 Crore
• After the first 3 years the interest rates will become floating as per the prevailing interest rates at that time.
• The scheme is valid till 31st December 2010.
HDFC Limited “Dual Rate Product – 4”
• HDFC Limited has launched “Dual Rate Product – 4” under its latest Fix-O-Floaty home loan scheme.
• Under this scheme the interest rate will be fixed at 8.5% till 31st March 2011.
• The interest rate will be fixed at 9.5% from 1st April 2011 to 31st March 2012. After that the home loan will become floating.
• The above rates will be applicable irrespective of the loan amount applied for.
• The offer is applicable only for those new customers who apply on or before 30th September 2010 and take atleast part disbursement before 31st October 2010.
• This scheme is also applicable to Non-Resident Indians (NRIs) and Persons of Indian Origin (PIOs).
LIC Housing Finance Limited (LICHFL) “Advantage 5”
• LIC Housing Finance (LICHFL) has come out with a new home loan product “Advantage 5”.
• Under this product the interest rate on the home loan is fixed at 9.25% for the first 5 years. Thereafter the home loan becomes a floating loan
• This product is beneficial for those home loan borrowers who are looking for a fixed lending rate for a long period as the current economic scenario is very unpredictable and it is hard to predict which side the interest rates are headed.
• The scheme rates are effective from 1st July 2010 and will continue till further review from the company side.
Apart from ‘Advantage 5’ LIC Housing Finance has one more dual rate product for home loan borrowers. Under this Fix-O-Floaty product the interest rate is fixed at 8.90% till 31st March 2012 and thereafter floating. The maximum loan amount ceiling for this product is 1.5 Crores.
Corporation Bank “Corp Home Smart” (CHSMT)
• On 19th July 2010 Corporation Bank unveiled a new home loan product under is existing “Corp Home Smart” (CHSMT) product.
• The scheme is applicable for loans upto 50 Lacs.
• The interest rate is fixed at 8.25% for the 1st Year and 9.25% for the 2nd Year and 3rd Year.
• The scheme is applicable only for new home loan applications which are sanctioned and disbursed on or after 19th July and upto 31st December 2010.
The Dual Rate Loans or Teaser Loans offered by these banks are good for people who are not sure of their cash flows and want to lock-in the interest rates for a brief period of time. From the above home loan schemes offered by 6 banks the longest fixed rate tenure offer is from LIC Housing Finance ‘Advantage 5’ wherein the fixed rate offered is 9.25% for 5 years. But the interest rate charged is on the higher side which is 9.25%. The lowest rate charged is 8.5% for all three years by Punjab National Bank under its Festival Bonanza Scheme. PNB Bank also has low margin at 15% and has waived off the entire Processing and Documentation Charges.
• The objective of this article is not to favour one bank over the others. The objective is just to make the customer aware of the home loan schemes being offered by various banks in the market. The customer needs to make his/her own choice based on the offer that best suits his/her requirement.
• The interest rates and all the other information has been sourced from the websites of the respective banks offering these schemes. Customers are advised to contact the bank and confirm all the details of the scheme with the bank before deciding on the final scheme to go for.
• In case of most of the banks; for new customers the fixed rates being offered are subject to the bank’s Base Rate. The interest rate will not be below the base rate of the bank.
For people who already have a home loan and would like to repay their home loan early and save on interest and reduce the number of EMI’s the below article will be helpful Home Loan Repayment Options
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