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Second home to cost more

Second home to cost more as loans will be more expensive

Apnaloan.com Research Bureau

10 Aug 2007

Banks to also charge 50-100 bps more for Rs 20 lakh-plus loans.

If you are looking to buy a second home or want a home loan of over Rs 20 lakh, get ready to pay more.

Taking the cue from Finance Minister P Chidambaram's directive to curb retail loans growth, including home loans, public sector banks are considering pricing home loans depending on the size of the loan or whether the property being purchased is for self use.

For housing loans above Rs 20 lakh, banks will charge 50-100 basis points higher interest. Banks will also charge higher interests for loans taken for second or third homes. Corporation Bank and Bank of India (BoI) are already charging higher rates for home loans of over Rs 20 lakh. Other banks like ICICI Bank, the largest home loan provider, and Punjab National Bank (PNB), are also likely to adopt a graded interest rate structure.

"We are considering a higher rate of interest for loans above Rs 20 lakh and for a second or third home. The differential will be 0.5-1 per cent," said U S Bhargava, chief general manager, Punjab National Bank.

Till now, interest rate on home loans varied according to the tenure of the loan, with longer tenure loans carrying a higher rate of interest. The rate of interest on home loans is 10-11.5 per cent now.

ICICI Bank is considering a differential pricing for home loans up to Rs 15 lakh, which are classified as priority sector lending. home loans above Rs 15 lakh are likely to cost more. "We are evaluating whether we need to differ in pricing for priority sector loans," said Rajeev Sabharwal, senior general manager, ICICI Bank.

Sabharwal said ICICI Bank did not encourage second home loans and insisted on a higher margin and stricter credit standards. Banks are also looking to discourage second and third home loan borrowers, with the Reserve Bank of India (RBI) and the finance ministry raising concerns about rising property prices.

State Bank of India (SBI), is likely to take a call next week.

About 50 to 60 per cent of home loans are up to Rs 10 lakh. At present, banks do not have data on whether the home loan applicant is a first or second time borrower. However, the RBI has asked banks to collect such data from new customers.

(Courtesy: Business Standard)

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