Interest rates on home loans decline further

Interest rates on home loans decline further
An interest rate war is brewing in the home loans this festive season. Development Credit Bank (DCB) and GIC Housing offering home loans below the psychological 8%. DCB, which recently entered the segment, is offering home loans at 7.95% for loans up to Rs 5 crore at fixed interest rate for the first year and floating rates from year two.

“While affordable housing is the buzzword these days, the market would get a further boost if attractive financing options are available,” says Praveen Kutty, executive vice-president and head, retail banking, DCB.

Private sector bankers maintain that borrowers should not fall flat over the sub 8% schemes and exercise caution before signing on the dotted line. “Many of these 8% schemes are of short duration, between three months and one year. But for us, housing finance is the only product... unlike some of the other lenders for whom home loans maybe just one of their products,” says Renu Sud Karnad, joint managing director, HDFC.

The company is offering a floating rate of 8.75% for loans up to Rs 15 lakh, 9% (15-50 lakh) and 9.5% for loans above Rs 50 lakh up to 20 years. HDFC is expecting its disbursals to grow by at least 20% this year.

But borrowers say that such switch over is not easy. IT professional R Ram who had taken a Rs 8 lakh home loan from a private bank at 12% is trying to change his account to a nationalised bank for sometime now. “I am half way through my EMI repayment and have been trying to shift my account for sometime now but its not happening. First, the bank with whom I have a home loan said that I have to pay a hefty penalty and transfer fees. After I agreed to that, they are now insisting that they need clearance from their head office in Mumbai. The bank is also saying some more documentation needs to be completed and some more procedures that need to be followed. It is quite frustrating.”
source - ET

Central Bank of India and Punjab National Bank have waived off processing fee and documentation charges on certain loans. While one would argue that there isn’t much difference between 7.95% and 8% home loans, bankers say that its basically a psychological pricing to get more borrowers into their fold.

According to bank observers, borrowers are preferring low interest bearing home loan accounts of nationalised banks over private banks. “While there has been demand for home loans in the affordable home loan segment (up to Rs 30 lakh), the activity in the upper bracket (loans above Rs 50 lakh) has mostly revolved around restructuring or takeover of such accounts by another bank,” says VS Reddy, managing director, Lakshmi Vilas Bank.

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