The home loan war seems to be hotting up. The private sector players (HDFC, ICICI, Axis, LIC housing Finance) are all providing loans at around 9.25% floating to their new consumers (including to existing borrowers of other banks wishing to shift their loans). For once the PSU banks seem to be using attractive structured offerings to provide stiff competition to the private lenders.
Suddenly the PSU banks are raining offers on the home loan consumers (including long suffering existing consumers of other banks). The Canara bank offer of completely fixed rates for the next 5 years was quite popular and SBI has also come out with a good offer.
For Home Loans upto Rs. 30 lacs the details are as under:
8% fixed for 1st year , 9% fixed for 2nd and 3rd year and the consumer can decide today between a floating rate thereafter at 2% below SBAR prevalent at that time (current SBAR is 11.75% so if SBAR remains the same the rate will be 9.75% after 3 years but actual rate will be known only at that time) or a fixed rate after 3 years for the 4th and 5th year at 1% below SBAR prevalent at that time (so if SBAR remains constant for 3 years then the fixed rate after 3 years will be 10.75% but actual fixed rate for 4th and 5th year will be known only then). There are no processing charges and no pre-payment charge if the pre-payment is made from your own sources.
Sources within HDFC have correctly pointed out that if you take the average rate (assuming that the rate from 4th year onwards will be 9.75% floating) then it works out to9.35% for SBI versus 9.25% for them.
However given the uncertainty surrounding interest rates and more importantly the tendency of all lenders (contrary to popular opinion the PSU banks also have a similar behaviour pattern) not to pass on the benefit of reduction in interest rates to their existing floating rate customers, it is always safe to go for fixed rates as long as they are economically priced and even if only for a few years.
It is here that the SBI plan scores over the other lenders who lend only on floating rate basis. Personally I would still rate the Canara Bank scheme higher than SBI as it provides for a fixed rate for 5 years with other charges that are the same as SBI.
The mighty sales machinery of SBI is already in full flow and their local level managers seem keen to do business for once. Let us see how the consumers re-act to this new scheme. Afterall the consumer is supreme.