THE teaser home loan offer seems to be a dated concept now. As most bankers are speculating a possible rate hike in the coming months, they have pre-empted it by withdrawing teaser rates campaign effective March 31. However, the State Bank of India (SBI) has decided to extend the scheme with a few changes.
As per the tweaked scheme, SBI will offer a fixed rate of interest at 8% for first year and 9% for the second and third year, irrespective of the loan amount and floating rate at 1.75% below SBAR (the PLR used by the SBI). Interest rates on loan from fourth year onwards will be pegged on the then prime lending rate. According to the earlier scheme, SBI offered fixed rate of 8.5% for second and third year, if the loan size is less than Rs 50 lakh and charged 9% for loans above Rs 50 lakh in the second and third year. While the rate has increased by 0.5% for the second and third years, the biggest difference is in the subsequent years where the loan continues to be linked to PLR, but the spread has been revised. While those who have raised loans before March 31 will pay interest at the rate of PLR minus 275 basis points, subsequent borrowers will have to pay PLR minus 175 basis points. In effect for the remaining years, interest rates have been hiked by one percentage point.
Despite the marginal increase in home loan rate for the second and third year, it remains an attractive proposition for customers who wish to repay the loan within first few years of the repayment. Most banks are already charging an interest rate of around 8.75% for a Rs 20-30 lakh loan. The rates are even higher at 9% and 9.5% for home loans in the range of Rs 30-50 lakh and Rs 50-75 lakh. The rates could increase taking cues from the Monetary Policy to be announced by the Reserve Bank of India (RBI) on April 20.
In case of SBI's home loan scheme, if you prepay the loan out of your own savings, there are no prepayment charges. In other cases, the penalty is 2% on principal amount prepaid.
On the flipside, however, from July 1, following the RBI's diktat, banks will peg interest rates on various loans disbursed by them to their 'Base Rate' instead of the PLR, which serves as the yardstick currently. All banks, including SBI, are yet to arrive at the new barometer for pricing loans. Therefore, the current proposition of interest rate (SBAR minus 175 basis points) fourth year onwards will become null and void in the base rate regime.
Since the scheme is on only till April 30, those who opt for the loan will be doing so without any information on the kind of interest payable from the fourth year — a discouraging factor. Thus, the risk arising out of the uncertainty may not seem daunting for home loan seekers intending to prepay their loans within 5-7 years, but long-term borrowers could be thrown off track once the base rate comes into play.
Therefore, any decision will have to be taken on the basis of the borrower's assessment of how beneficial the trade-off between at tractive interest rates for the first three years and the ambiguity surrounding the impact of base rates could turn out to be.
WHY GO FOR IT:
With interest rates likely to rise in the coming months, locking into low rates during the initial years makes sense, particularly if you are looking to prepay your loan in 5-7 years.
WHY NOT:
The scheme will end on April 30, and clarity on base rates will emerge only in July, which means the home loan contract will be signed under the cloud of uncertainty.
