ICICI bank has reduced their home loan rate for existing customers. As it is clear, it would benefit only existing home loan borrowers. It is not going to be applicable to new customers who would wish to buy home in current market scenario. Government recently has asked banks to lower the interest rates. Indian banks are not doing it across the board for all types of financial products. Home loan rates for new customers, personal loans, auto loans are still at much higher interest rates.
All these rates can play crucial role of liquidity and easy credit for consumers resulting in higher consumer spending which could provide a boost to economy. Unless this happens, economy and so the stock markets are going to reel under slowdown/depression pressures. Let’s understand what this fresh home loan interest rate cut from ICICI Bank means for consumers.When the State Bank of India (SBI) offered new home loans at 8 per cent interest (for the first year), HDFC upped its switching fees to 3 per cent to prevent the exodus of its customers.
Now, in a move to retain old customers, ICICI Bank is offering attractive home loan swaps for existing customers. If you have already taken a home loan from ICICI Bank at a higher rate of interest, you could now book yourself at 9.75 per cent floating interest rate by paying 0.5 per cent as switching fee on your existing loan. And, you need to decide if you want to switch by April 30, 2009.
In such a scenario, Wealth explores if these are indeed deals to grab. CEO of Apnaloan.com, Harsh Roongta advices, "If the current rate on your loan is 11 per cent, by switching you will be saving a considerable amount - a difference of 2.25 per cent this year!"
As a thumbrule, Roongta suggests that if the interest rates on your new loan and is even 0.5 per cent lower than the old one, you stand to gain by shifting.
The fine print:
Experts say that limited period offers are called teaser loans. And typical features of teaser loans are that you might have to pay a high charge if you decide to pre-close the loan or you will have to bear high interest rate at the expiry of the teaser schemes.
Though that does not mean the current slew of schemes would adopt such practices, it pays to be aware and stay vigilant.
So before you sign the dotted line, make sure you read all the terms and conditions in your agreement, especially with respect to the prepayment penalty clause and the interest reset clause.
Interest rate offered for new customers
For a loan amount of Rs 20 lakh, you can get a home loan for 20 years at the following floating interest rate:
SBI Special Home Loan Scheme: 8%
LIC Housing Finance Limited: 8.75%
ICICI Bank: 9.75%
HDFC: 9.75%
Unless Indian banks reduce the home loan lending rates for new customers, real estate sector will not take off. People willing to buy homes are still waiting for interest rate cut as well as property prices correction. Unless both these things happens, realty company stocks would find it difficult to see any upward direction in near future. It is very much advisable to not buy stocks of realty sector companies for some more time. Real estate sector has not yet bottomed out.
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