Are festive home loan offers worth it?

With stamp duty cuts by several state governments adding to the allure of benign property prices, the time seems ripe to buy your dream home. Home buyers also stand to benefit from the prevailing low interest rates on retail loans, that peg up the affordability of home purchases. Despite the status quo adopted by the RBI on policy rates, interest rates on home loans have dropped by 10-120 basis points (bps) since the start of the year, across lenders. To top it up, some banks and HFCs (housing finance companies) are offering limited period offers in the form of further rate cuts and processing fee waivers to cheer up home buyers this festive season.

However, borrowers should keep in mind that these offers pertain to floating rate loans. These rate are likely to be revised upwards during the tenure of the loan, more so, since we are already at the bottom end of the rate cycle. Hence, however enticing the interest rates may seem, the decision to take on debt must be taken with utmost caution, after considering the payouts that you will have to make during the 20-30 year loan tenure.

Here’s a lowdown on some of the festive home loan offers.

Special rates

Kotak Mahindra Bank now offers home loans starting from 6.5 per cent per annum for loans sanctioned and disbursed between September 10 and November 8, 2021. This is the lowest rate on offer in the market currently. However, the right way to compare offers from different lenders would be after considering everything - the rates, processing fees and other charges applicable on a case to case basis. The interest rates are offered according to one’s credit score and income profile.

Kotak’s offer, however, translates into only a 10 bps savings over the bank’s existing interest rates for borrowers with the best credit profile. Let’s bring in some perspective. For example, for every ₹10 lakh of home loan availed during the offer period (say for a 30-year tenure), borrowers can save only ₹790 in their EMIs every year. This offer is valid on all loan products (balance transfer, fresh home loans, etc.) and the interest rate is linked to the credit profile of the borrower.

HDFC has also slashed its interest rates by 10 bps for floating rate home loans sanctioned and disbursed (either partially or fully) until October 31, 2021. Customers with a credit score of over 800 can avail home loans at the rate of 6.7 per cent per annum, irrespective of the type of customer (salaried or otherwise) and the amount of loan availed. Earlier, the HFC offered home loans at 6.8 per cent to 7.3 per cent per annum for loans of up to ₹30 lakh and at 7.05 per cent to 7.55 per cent, for loans over ₹30 lakh but less than ₹75 lakh. For loans above ₹75 lakh, interest was charged up to 7.65 per cent. The HFC, however, offers its women home buyers a discount of at least 5bps on the prevailing interest rate, which can now not be clubbed with the limited period festive offer.

LIC housing finance, another leading HFC has followed suit and now offers home loans up to ₹2 crore at interest rates starting from 6.66 per cent to borrowers having a CIBIL score of 700 and more, irrespective of whether they are salaried or professionals/self-employed. This deal however benefits customers with higher ticket sizes only. This is because until now, the company was already offering interest rates starting from 6.66 per cent on its home loans of up to ₹50 lakh. For higher amounts, the HFC was offering loans at 6.9 to 7.9 per cent per annum.

The offer translates into savings of ₹13,417 (on your annual EMI payments), for customer who borrow ₹70 lakh during the offer period for a tenure of 30 years. The offer is available for home loans sanctioned from September 22 to November 30, 2021, provided the first disbursement is availed on or before December 31, 2021.

The country’s largest lender, SBI too has slashed its rates by up to 45 bps (concessions based on credit score of the borrower) during the offer period. Earlier, the bank offered loans at the rate of 6.7 to 7.3 per cent for loans up to ₹75 lakh and in the range of 6.95 to 7.4 per cent for loans over ₹75 lakh. Now, during the offer period, SBI offers home loans at 6.7 per cent, irrespective of the loan amount.

While 6.7 per cent might not be the best rate offered, the festive offers of SBI do mean substantial savings for customers when compared to the rates offered by the bank hitherto. For a borrower availing a home loan of ₹75 lakh for a tenure of, say 30 years, this would translate to a saving of ₹27,000 on EMI payments on an annual basis. Besides, for non-salaried borrowers, this offer period could mean an additional saving of 15 bps on the annual rate of interest charged.

Fee waivers

Besides lower rates, many banks and HFCs are also offering waivers on processing fees. LIC Housing finance, for instance, has capped its processing fee at a maximum of ₹10,000 or 0.25 per cent of the loan amount, whichever is lower for loans up to ₹2 crore. Outside of the offer period, the HFC charged a fee in the range of 0.25 to 0.5 per cent of the loan amount. The maximum fee charged was pegged at ₹15,000 for loans up to ₹1 crore and up to ₹50,000, for loans in the range of ₹1 crore to 3 crore.

HDFC too has slashed its processing fee to ₹3,000 for customers who are salaried and self -employed professionals, and to ₹5,000 for self-employed non-professionals, from the earlier ₹10,000. SBI also is offering a complete waiver on its processing fee for home loan buyers, during the offer period.

Bank of Baroda is also offering a 25 bps cut in the interest rates charged on its Baroda Home Loans, along with a 100 per cent waiver in processing fee for loans availed until December 31, 2021.

COMMENT NOW