Should you switch your home loan to SBI?

Though State Bank of India (SBI) has cut rates on home loans by 25 to 85 basis points (bps) across tenures (bank’s present discount to its card rates is about 25 bps), it’s a bit early for home loan borrowers to switch their lender. Wait for 10-15 days, as other lenders are likely to follow suit. Borrowers can also use SBI’s example to bargain with their respective lender for better rates. It is most likely that their lenders would agree, as it is in their interest to retain a borrower with a good repaying record, say experts.

For home loans up to Rs 30 lakh, SBI has reduced the interest rate from 10.75 per cent to 10.25 per cent and to 10.4 per cent for loans above Rs 30 lakh. Earlier, for loans between Rs 30 lakh and Rs 75 lakh the interest rate was 11 per cent and for loans above Rs 75 lakh, it was 11.25 per cent. The revised equated monthly instalment (EMI) per Rs 100,000 at the rate of 10.25 per cent for a loan tenure of 30 years would be Rs 897, against the prevailing EMI of Rs 934, said an SBI statement. The waiver of the prepayment penalty for floating rate home loans has made switching lenders to take advantage of lower rates an attractive proposition for borrowers. But that should not be the only criteria for switching your lender. The difference between old and new rates should be at least 75-100 bps for the switch to make commercial sense, as the procedure is cumbersome.

Harsh Roongta, CEO, Apnapaisa.com, says other lenders might also cut rates and it is best to wait for 10-15 days. The biggest advantage is that there is no prepayment penalty on floating rate loans. However, there will be a nominal processing fee and a small fee on creation of security. Home Loan Rates

 SBI #  10.25
Other Bank # Minimum 10.5% floating

* ICICI Bank and HDFC Ltd also have floating interest rate scheme where the interest rates are fixed for the initial few years and thereafter the then prevailing floating rates are applicable.

# SBI rates are effective from August 7, 2012.
 The home loan rates are indicative rates, which may change according to the credit profile of the customer. Source: Apnapaisa Research Bureau

Even if borrowers are getting the new loan at 50 bps less and if only two years are left for repayment, switching to a new lender will help, as the rates offered by SBI are very competitive, Roongta says.

Assume, for instance, a borrower took a floating rate loan of Rs 80 lakh, at an interest rate of 12 per cent and tenure of 30 years. The loan has been repaid for five years. The old EMI is Rs 82,289 and the amount due is Rs 78,13,057. If the loan is reset at 10.5 per cent, the new EMI is Rs 76,000. The difference works out to Rs 6,000. Car Loan Rates

State Bank of India # 10.75
Other Bank # 11.25

Car Loan – Interest rates as on August 02, 2012
* SBI rates effective from August 07, 2012 Source: Apnapaisa Research Bureau

Vipul Patel of Home Loan Advisors, an independent mortgage advisory firm, is advising his customers to use SBI’s rates to bargain for a better deal with their respective lender. If the lender does not agree to lower the rates, then the borrower must switch to a new one. “Even if your bank does not bring down rates to 10.25 (SBI’s charge), they might at least reduce it to 10.5 or 10.75 per cent. If your current rates are 11 per cent or above, even this much of a reduction will help,” he says.

While switching the loan, borrowers should try to keep the monthly repayment constant or increase it, so that the period of the loan does not increase. However, unlike home loans, it does not make sense to switch your car loan. The prepayment charges are huge and the loan tenure is short in most cases (three to seven years).

SBI cuts interest rates on Home & Car loans from August 7

Mumbai, August 1: The country's largest lender State Bank of India will cut rates on its home and auto loans. The move comes close on the heels of the Reserve Bank of India cutting the statutory liquidity ratio for banks in its policy statement on Tuesday.

 

SBI will cut rates on home loans by 25 bps and on auto loans by 50 bps, the bank's chairman Pratip Chaudhuri told ET NOW in an exclusive interview. The new rates will be effective from August 7. The bank, however, is not in a position to cut its base rate at present.

 

"We need to use interest rates as an instrument to increase credit flow. We are targeting home and auto loans because the pass through in both these segments will be the fastest," Mr Chaudhuri said. SBI's asset liability committee met on Wednesday evening to take a call on interest rates following the RBI's policy.

 

According to Mr Chaudhuri, "there is very weak corporate demand and it won't make business sense to cut rates for corporates at this juncture." However, he added that a pick-up in demand from corporates may lead to the bank looking at reducing rates for corporates.

 

SBI has in the recent past cut rates on its SME and auto loan portfolios but this is the first home loan rate cut by the bank in a few quarters.

 

Though the bank hasn't taken any call on deposit rates yet, Mr Chaudhuri mentioned that SBI is seeing a surfeit of deposits at a time when the rest of the banking industry is starved of deposits. The bank will declare its Q1 earnings on August 10.

 

PTI Reports:  New Delhi, August 1: State Bank of India today slashed lending rates on car and home loans by up to 0.5 per cent, a day after one per cent cut in SLR by the Reserve Bank. SBI has reduced interest rate on home loans of up to Rs 30 lakh to 10.25 per cent from existing 10.50 per cent (after 0.25 per cent concession over the card rate), a senior bank official said.

 

On the home loans of beyond Rs 30 lakh but less than Rs 75 lakh, the new rate will be 10.40 per cent against the existing 10.75 per cent, down 0.35 per cent.

 

The new rates will be effective from August 7, the official added. The base rate or minimum lending rate of SBI stands at 10 per cent. Base rate is the benchmark rate below which a bank cannot lend.

 

With regard to the car loan, the reduction is to the extent of 0.5 per cent. The new car loan would be 10.75 per cent against the existing rate of 11.25 per cent for a seven-year loan. Now for every Rs 1 lakh, a customer has to pay Rs 1,699 EMI against Rs 1,725 per month earlier. SBI claimed this as the lowest EMI. With the reduction, a borrower would end up saving Rs 312 per year on every one lakh.

 

Yesterday, RBI in its quarterly monetary policy review reduced Statutory Liquidity Ratio (SLR), the amount of deposits that have to be invested in government bonds and other liquid assets, by 1 per cent. RBI Governor D Subbarao cut the SLR to 23 per cent, thereby releasing around Rs 68,000 crore of additional liquidity into the system, even as he left all the key interest rates unchanged in the anti-inflationary stance.