If you had postponed buying a house by a year, in all probability you would be cursing yourself for procrastinating. Not only have property prices moved up sharply, the interest rates too have gone up almost 2 to 2.5 per cent in that period. Moreover, the market place for home loans might be a confusing place with each bank offering different rates and on varying terms.
Add in a weekend or two to you property search to learn about the home loan products on offer to figure out the cheapest and best on offer. ICICI Bank, the leader in the category, hiked the floating reference rate by a sharp 1 per cent this week. That came less than 24 hours after Finance Minister P Chidambaram asked the public sector banks not to hike home loan rates. With home loans coming under the priority sector category, the PSU banks too were obliging.
HDFC, the oldest and the second largest in the home loan business has not hiked the rates yet. HDFC, ED, Renu Sud Karnad said that they are not increasing its mortgage rates for now.
Indian Bank CMD KC Chakrabarthy said that the bank, which raised lending rates by 0.25 per cent only on February 1, may not have to raise rates again. "This is why you should come to a public sector bank. We have the cushion of low cost deposits from the semi urban and rural areas and we can put off any rate hike review till March," he said.
State Bank of India, which has an approximate market share of 12 per cent in home loan segment is in the process of fine tuning its slab structure. "We currently have three slabs with differing tenure and rates and we want to make it less confusing for the customer," says a senior manager in charge of home loans. SBI offers 9.75 per cent under the floating category upto 15 years and 10.25 per cent on fixed rate loans.
The fixed rate loans are not always fixed for the entire tenure of the loan. "No bank would offer a fixed loan with interest rates unchanged for the entire loan period," said a banker. That is where we are different, says the spokesperson at HDFC. HDFC fixes interest rates based on the loan amount and not tenure. Moreover, its fixed rates are really the fixed ones as it is never subject to review once fixed and disbursed. Currently it offers loans up to Rs 10 lakhs at 9.75 per cent, above Rs 10 lakhs at 9.5 per cent and fixed loans at 11 per cent.
"A floating rate option for very attractive. I was happy when my loan period was getting shorter with fall in interest rates. But now I feel trapped as not only loan tenure got extended twice, but my EMI has also been hiked," says a professional repaying Rs 8 lakh mortgage with ICICI Bank.
It does not help a customer very much to be moving from floating to fixed now, but it is good if one can re pay some amount of the home loan if one can afford that, advice investment consultants. Take for instance this case where a customer took Rs 4 lakh mortgage at 7.25 per cent. The rate moved up to 10.25 per cent and the customer's tenure moved up from 15 to 22 years. By repaying Rs 2 lakh the customer brought down the loan tenure to 10 years with an EMI of Rs 5222 way above the initial EMI of Rs 3128.