SBI further reduces its home loan rates to stimulate the home loan market

The State Bank of India has further reduced its home loan rates. In SBI's three-month-long "SBI My Home Campaign", interest rate for the first year is 8%, and for the next two years is 8.5% to 9% depending on size of the loan. It is linked with benchmark lending rates.

There will be no processing fees, free personal accident insurance and no levy on prepayment of loans if they are paid from the borrower’s own resources.

For Hi-Five Loan scheme, for loans up to Rs 5 lakh the bank is offering an annual rate of 8 per cent for the first five years. Thereafter, the borrower has the option to choose between a floating rate of 2.75 per cent below the State Bank Advance Rate (SBAR) and a fixed rate of 1.25 per cent below SBAR.

Under Easy Home Loan scheme, for loans up to Rs 50 lakh, the lender will charge 8 per cent in the first year and it has reduced the second- and third-year rates from 9 per cent to 8.5 per cent. From the fourth year on, the conditions are the same as that in the Hi-Five Loan scheme.

For loans above Rs 50 lakh (Advantage Home Loan scheme), the new rates are 8 per cent (first year), 9 per cent (second and third years) and a floating rate of 1.75 per cent below SBAR or a fixed rate of 0.75 per cent below SBAR from the fourth year.



These rates are lower than the rates offered by other banks & FIs. HDFC is loan rates are from 8.75-9.50. LIC is charging between 8.75-9.25. ICICI Bank charges between 9.25-9.75. Punjab National Bank rates range from 9.25 to 9.75. Canara Bank awas the first one to offer a five-year fixed rate. For the first year, it charged 8.25 per cent and 9.25 per cent in the next four years.

Such lower rates could at the start of taking a housing loan is enticing. However, some experts feel that many borrowers may found themselves unable to service the loans later, with increased rates. This may lead to subprime-like crisis, which happened in US housing market.

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