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SBI 8 per cent home loan scheme-Why it is not the cheapest in the market today

The 8% SBI home loan scheme is definitely attractive, but not the cheapest. Here's why.

Harsh Roongta

10 Feb 2009

The entire compare home loan offers" href="http://www.apnapaisa.com/loan/home-loan-india/compare.html" target=_self>home loan market was electrified by the bold announcement of an interest rate of 8% by SBI for the first year for its new home loan consumers. SBI made it clear that the reduced rate was applicable only for the first year and would revert to normal floating rates at the end of the first year. It was not very clear what this revised rate would be. Another doubt was how the loan eligibility would be calculated (whether on the basis of the lower first year EMI or based on the potential increased EMI in the second year). For details on how EMIs affect your loan eligibility see this article: www.apnapaisa.com/loan/home-loan-india/right-correct-home-loan-tenure.html  

Now some details on this scheme are available. It turns out that there will be two EMIs. A lower EMI @ Rs. 836 per Rs. 1 lac of loan and then an increased EMI based on the normally applicable floating interest rates (10.25% p.a. for 20 year loans up to Rs. 30 lacs EMI Rs. 977 per Rs. 1 lac of original loan amount and 10.75% for 20 year loans between Rs. 30 lacs and Rs. 75 lacs EMI of Rs. 1009 per Rs. 1 lac of original loan amount). The loan eligibility will not be increased and will be calculated based on the potentially increased EMI from the II year onwards.

Based on these details, you can see from the table below that LIC housing finance is the cheapest provider of 20-year Home loans today and HDFC Limited is not too far behind.

Name of the Bank

Loans Up to Rs. 20 Lacs

Rs. 20 lacs+ to Rs. 30 lacs

Rs. 30 lacs + to Rs. 75 lacs

Other Features

LIC housing finance

8.75% - Floating rate

EMI of Rs. 884/- per lac of loan

8.75%

Floating rate

EMI of Rs. 884/- per lac of loan

9.75%

Floating rate

EMI of Rs. 949/- per lac of loan

0.50 to 1 % processing fees and upto 2% pre-payment charges.

Rates available till further notice

State Bank of India

9.25% fixed for 5 years and resettable after 5 years

EMI is Rs. 916 per Rs. 1 lac of loan consumers can also choose the option in the next column if they so desire

8% for 1st Year and 10.25% floating from second year onwards effective interest rate 9.94% floating approx

EMI for 1st year fixed at Rs. 836 and if floating rate stays at 10.25% at the end of year 1 the EMI will be increased to Rs. 977 per Rs. 1 lac of loan

Weighted average EMI works out to Rs. 961/- per Rs. 1 lac of loan

8% for 1st Year and 10.75% floating from second year onwards effective interest rate 10.36 %  floating approx

EMI for 1st year fixed at Rs. 836 and if floating rate stays at 10.25% at the end of year 1 the EMI will be increased to Rs. 1009 per Rs. 1 lac of loan

Weighted average EMI works out to Rs. 989/- per Rs. 1 lac of loan

No processing fees and no pre-payment charges if pre-paid from savings or windfall. 2% pre-payment charges otherwise

Legal fees payable extra.

Free linked life insurance policy for loans up to Rs. 20 lacs only taken under 9.25% scheme.

Rates for Loans up to Rs. 20 lacs taken under 9.25% scheme available if disbursements are made latest by June 30, 2009 and the other 2 rates available only if at least partial disbursement is made by April 30, 2009

HDFC Ltd.

9.75% - Floating

EMI of Rs. 949/- per lac of loan

9.75% - Floating

EMI of Rs. 949/- per lac of loan

10.75% - Floating

EMI of Rs. 1015/- per lac of loan

Processing Fees 0.50% to 1 %

Prepayment Charges  @ 3%

Rates available till further notice

As you can see if you compare only the interest rates LIC housing finance is clearly the cheapest available option today, hence is also likely to give the best loan eligibility amount. However, on loans up to Rs. 20 lacs the base for comparison may not exactly be correct since the home loan rates" href="http://www.apnapaisa.com/loan/home-loan-india/rates.html" target=_self>SBI interest rate is fixed for 5 years (with a promise that interest rates will be reduced if their actual floating rates drop below 9.25% during those 5 years it remains to be seen how that promise is captured in the loan document) and also there is a free life insurance policy attached with it. We personally feel that the 0.50% p.a. premium (over 8.75% charged by LIC Housing Finance) charged by SBI for this slab is perhaps worth paying for the assurance of a 5 year fixed rate.

Clearly the home loan market is hotting up with promise of more goodies to come in the near future. If only the builders would drop their prices so that we can finally see some consumer interest come into this sector.