SBI home loans are cheaper even without teaser rates

State Bank of India (SBI) will discontinue its teaser home loan schemes from the end of this month. The interest rates offered on its home loans will now be replaced by floating interest rate schemes, which are comparable with those offered by other commercial banks and housing finance companies.

All loans from May 1 will attract an interest rate of 9.5-10.25 per cent, depending on the loan amount.

Loans up to Rs 30 lakh will be available at 9.5 per cent (one percentage point above their base rate). Loans in the Rs 30-75 lakh bracket will be charged 9.75 per cent (125 basis points above the base rate). And, those above Rs 75 lakh will be charged 10.25 per cent (175 basis points above the base rate). However, these rates would move in line with the changes in the bank’s base rate that is reviewed every quarter.

Earlier, the Reserve Bank of India had asked banks to stop giving teaser loan rates, since it believed such loans impacted the asset quality of the bank’s home loan portfolio. Teaser loans offered advances at a comparatively lower rate of interest for the first few years, after which rates were re-set at higher rates. SBI was the last one to discontinue such special loans.

Under its SBI Easy Home Loan and SBI Advantage Home Loan products, one could get loans for 8-8.75 per cent in the first three years. After the third year, the rates would get reset at the then current floating rate structure.

At 8.75 per cent, a 20-year-old loan on Rs 30 lakh would come to Rs 884 a lakh. At 9.5 per cent, you would now be paying Rs 932 a lakh.

The good news is that for those who have already availed SBI’s teaser home loans and are still in the initial three years, the old rates remain applicable. The new rates will only apply to new applicants.

Among the housing finance companies, LIC Housing Finance still offers a fixed interest rate of 9.9-10 per cent for the first five years and, thereafter, the then prevailing rates are applicable. But a quick calculation on apnaloan.com showed that the average rate for a 20-year period still works out in SBI’s favour. The average rate for SBI was 9.5 per cent, while that for LIC Housing was 10.5 per cent for the same period.

SBI has also said there would be no prepayment penalty on home loans. The bank used to charge customers a two per cent penalty on prepaying the home loan. It will also introduce a graded processing fee, which it will increase according to the loan amount.