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Slashed rates bring cheers to Borrowers
hindu.com,Saturday, Aug 29, 2009
Housing loan rates are being slashed. The aggression by banks and home finance companies is intended to capitalise on the festival season spend and hence the special offers are valid till September 30. An analysis has been done to understand how significant these differences in rates offered by the banks are to a prospective borrower.
Taking the two big players, the SBI and LIC Housing Finance Ltd. (LICHF), we assume a borrower seeking a 15-year term and a loan of Rs.20 lakh (house property valued at Rs. 30 lakh).
The difference between the SBI and the LICHF is in the first three years. While the LICHF offers an 8.9 per cent rate fixed for the first three years, the SBI is offering 8 per cent for the first year and 9 per cent for years two and three.
Our assumption is that from the fourth year onwards till the 15th year, the rate of both banks will be identical at 12 per cent. The SBI offer is cheaper by 0.9 percentage point for Year 1 and expensive by 0.1 percentage point only for years 2 and 3.
When the EMIs are compared, Rs.52 is paid additionally per month for the first year and Rs.6 saved per month for next two years by choosing LICHF. For a five-year term, the interest difference in absolute terms is Rs.7,920 and for a 15-year term, it is Rs.9, 600. On property worth Rs.30 lakh for which a loan for Rs. 20 lakh is taken, Rs.9,600 works out to 0.32 per cent of the property cost and 0.5 per cent of the loan of Rs.20 lakh.
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