While applying for a home loan, everyone come across 2 terms i.e. RPLR or BPLR Vs Base Rate. BPLR is a Benchmark Prime Lending Rate or RPLR is a Retail Prime Lending Rate. For simplicity purpose, i will refer BPLR or RPLR as BPLR only. What are these terms and why they are very critical while finalizing a Home Loan. In layman terms, all the Floating Home Loans are linked to either Base Rate or BPLR. Now the two questions which come to mind is why Floating Home Loans are linked to these 2 different ways of calculation? Why can’t financial system follow single criterion to link floating home loans? Answer to this query is that there are 2 sets of Financial Institutions that provide Home Loans (a) Banks like SBI, ICICI, Axis, Bank of Baroda etc (b) HFC’s (Home Finance Companies) like HDFC, LICHFL, PNBHFL etc
The key difference between Banks and HFC’s is that Banks are governed by RBI (Reserve Bank of India) and HFC’s are governed by NHB (National Housing Bank). Now before proceeding further let me introduce one more term “Spread” for floating Home Loans under BPLR. What is spread? It is the discount or Mark up offered by Bank or HFC on its existing Base rate or BPLR. Let me give you an example, Suppose today you approach 2 institutions i.e. Axis Bank and HDFC Ltd. Let me clarify, it is not an HDFC bank but it’s an HFC. HDFC Ltd and HDFC Bank are sister concern.
Before July 01, 2010 all the home loans irrespective of Bank or HFC were linked to respective BPLR or RPLR. There were a lot of complaints from borrowers under benchmark rate. The borrowers complained about two pain areas i.e. existing borrowers were paying higher interest rates compared to new borrowers. Secondly, Banks or HFC’s are not transparent in declaring their BPLR. Just to share an example, If any borrower availed a loan when interest rates were low say 8.5% or in other words, BPLR of 11% with a spread of 2.5%. Assuming, current BPLR is 15% so he must be paying interest of 12.5%. The banks or HFC’s were offering a discount of 4.5% to new borrowers and offering a lower interest rate of 10.5%. Secondly, Banks/HFC’s were accused of promptly increasing the BPLR when RBI increase the Key rates. On the contrary, when RBI decreased rates then these institutions didn’t show same promptness to decrease the BPLR.
The reasoning given by Banks/HFC’s was that BPLR is linked to the average cost of funds. RBI introduced Base Rates that are linked to marginal cost of acquiring funds. Marginal Cost is prospective in nature (Will impact in future). On the other hand, Average Cost is Retrospective in Nature (Will be impacted by past). So ideally, if RBI increase rate than BPLR should not be increased immediately because its impact can be felt few months after the hike. On the other hand, Base Rate can be increased immediately. To negate the impact, a borrower can change his/her spread, he can do so by paying conversion fees. Conversion fee is normally 0.5% of the outstanding principal amount. Assuming current spread is 3% and spread for new borrowers is 5 % then HFC will offer borrower to increase his spread to from 3% to 5% by paying 0.5% of outstanding loan amount.
In order to solve this issue, RBI issued guidelines to Banks to offer Home Loans linked to Base Rate w.e.f July 01, 2010. Also, existing borrowers can move to Base Rate from BPLR by giving application to Bank in this regard. The banks cannot charge any additional amount for moving a borrower from BPLR to Base Rate. A shift to Base Rate does not guarantee lower interest rates.
How Base Rate or BPLR/RPLR impact Home Loan?
With this background now we can understand how Base Rate or BPLR / RPLR can impact your Home Loan interest outflow. It will not impact much in terms of interest rate because Base Rate has a markup and BPLR has a discount. A markup or discount is also called Spread. The impact will be in promptness of Bank or HFC to revise the Base Rate or BPLR in sync with current scenario (read linked to REPO Rate of RBI). Now i will explain how it will not impact in terms of interest rate. I will take 2 examples, one of a Bank A (I will not name but its real example) and second is of HFC and will refer HFC B. Assuming Bank A is offering interest rates @ 10.50% (Base Rate of 9.5% and Mark Up of 1%) & HFC B is also offering interest rate @ 10.50% (BPLR of 16% and Spread of 5.5%). Now RBI increased REPO rate by 0.25% and banks were forced to increase Base Rate by 0.25%. Now instead of increasing rates for new borrowers to 10.75% (Base Rate:9.75% and Mark up of 1%), Bank A will decrease Mark up to 0.75%. The new borrowers can still avail loan at 10.5% whereas borrower who availed loan before REPO Rate cut will now pay 10.75%. Similarly in BPLR scenario, it will increase by 0.25%. With a BPLR of 16.25% and spread of 5.5%, the old borrower will pay 10.75% interest. If the movement of benchmark rate is same then the borrower is not benefited because both are paying the same interest rate of 10.75%.
Let’s assume, Base Rate and BPLR movements remain in sync with each other. They are increased by 2% compared to initial assumption. The borrower of Bank A (Base Rate of 11.50% and markup of 1%) and HFC B (BPLR 18% and Spread of 5.5%) will be paying the same interest rate of 12.50%. The only difference is that with a bank A, it is markup above base rate and with HFC B it’s discount on BPLR. The best possible scenario for a borrower is to avail loan as close to Base Rate as possible i.e. with least Mark Up. On the other hand, as distant from BPLR as possible i.e. with the highest discount over BPLR. Though i agree this cannot be fine tuned because future is uncertain.
The only scenario in which the borrower of HFC B will lose, if say Interest rates come down. HFC B does not decrease BPLR in sync with RBI REPO rates. Whereas for a Bank A there is no option but to decrease Base Rate. The decrease may not be same as the decrease in REPO Rate. Assuming, RBI will decrease REPO rate by 2%. The new base rate will be 7.5% so borrowers who availed loan initially will pay 8.5%. The HFC B will decrease BPLR by only 1.5% depending on the cost of funds. The borrower of HFC B will be paying 9% interest. Again this is a pure Hypothesis and in the current scenario of tight scrutiny, Base rate, and BPLR will move more or less in sync with each other. It is true that cost of funds for HFC’s will always be higher than Banks. Reason being, HFC’s don’t have access to low-cost CASA funds.
To conclude, if you are availing home loan from bank then be assured of upward and downward movement nearly linked to RBI policy. You need to check on Mark up above the base rate because it will help a lot when rates will come down. If you are near base rate i.e. lower markup then your rate of interest will come down much faster compared to borrowers with a high markup.
In case you are availing home loan from HFC then the only issue is a downward movement of BPLR. It can be checked easily by asking HFC to provide BPLR history. You can ascertain whether HFC has decreased rates when RBI decreased REPO rate in past. Also, higher the discount, the financial benefit of a decrease in interest rates will be more. Always remember, the Mark up and Discounts are not in your control. It is decided by Banks and HFC depending on the competition and other factors. Lastly, As a thumb rule, floating home loans are beneficial when interest rates are on a downward slope. On the other hand, fixed interest rates are beneficial when interest rates are increasing. To know the difference, check my post Floating vs Fixed Interest Rate Home Loan.
Update Feb 08, 2016: As i shared in my post, Marginal Cost of Funds based Lending Rate, the MCLR will replace the Base Rate w.e.f 1st April 2016. It will help in faster and full transmission of REPO Rate cut/increase. Therefore, the home loan interest rate will be market linked. The MCLR will indirectly impact the BPLR or RPLR of HFC. In order to remain competitive, the HFC’s will also match the interest rates offered by banks. Time will tell the impact of MCLR on existing borrowers.
To know the cheapest home loan interest rates, you may CLICK HERE.
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I am extremely inspired along with your writing skills as smartly as with the structure for your weblog. Is this a paid topic or did you modify it your self? Either way stay up the excellent quality writing, it’s rare to look a great blog like this one nowadays..
Dear Sir,
Thanks for ur encouraging words..All the posts on this Blog are free and are written by me…
Keep reading !!!
Nitin Bhatia
Mr.Nitin Sir,
Thanks for the your valuable blog.
I am applying home loan in LIC HF , wherein they are offering me ROI as 10.75% floating which is linked to PLR (now current PLR is 14.40) and ther spread rate is 3.65.
I am looking forward to apply home loan in LIC HF as they are offering me loan amount 17 lac (more that SBI and HDFC) with tenure of 20 or 25 yrs.
In my case ROI will depend on PLR which again according to RBI norms.
When and how this PLR rates changes ? can you provide me the list of previous PLR declared wrt date.
LIC HF stating that PLR will not change all the time , its changes once in year or so … as you mentioned earlier in blog that ROI will reduce in future .. will PLR also ?
Can i go ahead with LIC HF ? Please advise.
Just to add LIC HF is not governed by RBI but by NHB. There is no historic data available regarding changes in PLR. You can contact the LIC and request the same.
There is no hard and fast rule that PLR will change once in a year, it all depends on HFC. Secondly, i mentioned that interest rates will reduce in future but it is not necessary that PLR will also change becoz any reduction in PLR will reduce interest rate of existing customer also so HFC only increase the spread to reduce rates for new customers & keep PLR unchanged.
On personal note, i will not recommend you to go ahead with LIC HF.
Hi Nitin,
I am krishna and i have purshed flat in noida extention and have the home oan requirement. currently HDFC bank and corporation bank approved this property. which one is better option in them? Also can i avail the loan from SBI.
Please copy your reply at krishverma84@gmail.com
You can avail loan from SBI. If project is approved by HDFC and Corporation bank then it doesn’t mean that you have avail loan from either of 2. It only means that if u avail loan from HDFC or corporation bank then ur paper work will be minimum.
If u wish to go with either HDFC or Corporation bank then u may go for HDFC
Simply wish to say your article is as surprising. The clarity on your publish is just spectacular and i could suppose you’re a professional on this subject. Well along with your permission let me to snatch your RSS feed to keep updated with drawing close post. Thanks 1,000,000 and please keep up the gratifying work.
This is an extremly well researched article. Kudos… More articles can help shed more light on the same issue….
Thanks for liking the article..I appreciate ur feedback and shortly i will post article with more details on this darkest truth. Housing Finance Companies make fool of customers through RPLR & BPLR
Hello Sir,
First of all thanks for such a rare and clear information regarding home loan calculation parameters. First, I would like to know is their any difference in interest calculation in Nationalized banks and private sectors banks? Second, if their any mean to lower down our home loan interest rate in SBI MaxGain home loan?
Thanks
Amit
Thanks for ur appreciation..To answer ur queries
1. Yes there is difference in interest rate calculation of various banks irrespective of being Govt Bank or Pvt bank..Interest rate is calculated as Base Rate + Mark up & this Base Rate and mark up are different for different banks..
2. Recently SBI has decided to pass benefit of lower interest rates to existing customers but u need to pay 1% of your loan outstanding as fees to shift to lower interest rate..e.g. if ur loan outstanding is 20 Lacs then u need to pay 20k + taxes to shift to lower interest…U can download EMI calculator in useful links to calculate real benefit of shifting to lower interest rate but keep in consideration that u r paying 20k upfront today.
Hope i answered ur query
Dear Nitin,
Thanks for your valuable inputs on RPLR Vs Base Rate.
Please clarify as on today i.e. June, 2012 whether HDFC Ltd is following RPLR or Base Rate?
HDFC Ltd follow RPLR becoz HDFC Ltd is a Housing Finance Company and is governed by National Housing Bank. Other e.g. are LIC, Dewan Housing, Tata Housing Finance etc.
Base rate is followed by banks, which are governed by RBI e.g. SBI, ICICI, AXIS etc
Thank you for your valuable inputs, Many people have in depth knowledge but to convey that knowledge in simple terms is an art. You have that art of explaining things in layman language.
Dear Mr. Bhatia,
Its an extremely educative article. Further, I would like to inform you that I have taken a loan from a BHC in December 2010 for a tenure of 15 years. The 1st 3 months of FY 2010-11, I had a fixed EMI and FY April 2011 to March 2012 also I had a fixed EMI. It is from April 2012 that I have been informed that it would be floating and the same would be PLY minus 5%. As the RBI announced yesterday a cut of 50 BPS how do I actually approach my BHC for the benefit of the reduction.
Sir, Thanks for ur kind words..I cud not get ur home loan lender’s full form i.e. BHC…I assume its not a bank and Housing Finance Company. Just to add that it seems your interest rate was fixed only till Mar’12 & now its floating, i request you to check your loan agreement for terms & conditions i.e. tenure of fixed interest rate period and discount (5%) once loan is converted to floating or second scenario can be if ur working life is less than loan tenure then banks start charging higher EMI’s to recover loan before u retire e.g. if i am 45 Years now & bank assume i will work till 58 Yrs now due to high interest rate, my remaining loan tenure is 15 years then bank will start charging high EMI so that my loan tenure don’t exceed my working life i.e. 58 yrs.
Secondly RBI’s decision is not binding on Housing Finance Co’s (HFC) whose loans are linked to PLR becoz HFC’s work on principle of Cost of acquiring Funds….Banks both Govt & Pvt Banks will definitely cut base rate by 50 basis point thus interest will decrease by 0.50% for customers who availed loan from banks.
But u can also approach BHC for benefit but they will charge some fees for conversion…The general formulae for calculating fees is (New rate – Old Rate) * Outstanding Loan amount / 100 e.g. if ur current outstanding is 15 lac & current interest rate is 11%..New Interest rate is 10.5% then fees will be (11-10.50)*15 Lac/100 = Rs 7500+Taxes..So approx 8300 Rs u need to pay to lower ur interest rate.
Hope i answered ur query..Tks
Dear Mr.Bhatia,
This is indeed a very informative page. Answered nearly all of my queries. Just that I came across this
Dear Sir,
To answer your queries
(a) Bank cannot charge any conversion fees from customers who would like to shift from BPLR to Base Rate. Pls find following link with RBI guidelines on same. In the guidelines kindly refer section “Transitional Issues” clause xi where it is clearly mentioned Banks cannot charge for shift from BPLR to Base Rate.
http://rbi.org.in/scripts/NotificationUser.aspx?Id=5579&Mode=0
(b) As i understand SBI might have charged Conversion fees for shifting ur loan from higher interest rate to Lower interest rate but not for conversion from BPLR to Base Rate. I request you to clarify this from SBI & carry copy of RBI notification along with u.
(c) RBI has not addressed the issue of Conversion fees charged by Banks in its directive therefore in absence of any guidelines, banks are free to do whatever they want to. If u wish to complain regarding this, u can write to Bank Ombudsman of SBI in your area. You will find details on Banks website
(d) Banks will not inform their customers proactively for conversion from BPLR to Base Rate as it is huge loss to bank…Banks sole objective is to make profit & existing customers are scapegoats for same. You can read my following blog on how banks make fool of existing customers
https://www.nitinbhatia.in/home-loan/step-motherly-treatment-to-existing-home-loan-customers/
(e) As i mentioned, Conversion fees is grey area as their is no guidelines from RBI on same. I doubt bank will refund your conversion fee. At max you can directly complain to RBI and request RBI to issue guidelines regarding conversion fees charged by banks.
(f) Base rate was implemented from July 01, 2010 not April, 2012 as mentioned by you so u lost approx 2 years additional interest. Unfortunately as per RBI guideline, the onus of shifting from BPLR to Base Rate rests with customer not with Bank so you can’t do much in this regard. Banks were allowed to continue with BPLR for loans prior to July 01, 2010 until and unless old customer approach bank for conversion from BPLR to Base Rate
Hope i answered your all queries..Pls feel free to contact if u have any other doubts or query regarding any Home Loan issue.
Thanks
Nitin Bhatia
Many thanks Mr.Bhatia!
This is such a detailed reply with so much useful info and very clear guidance. Thanks again for your valuable time spent on replying my queries! I am surprised that SBI did this to me..because I questioned the Bank manager during August 2011 about the increased interest rates and if something can be done about it. Now I feel he was dishonest by replying that “indeed interest rates have actually gone high and he can’t do much about it except me paying the money back as soon as possible and clear the loan!!”. How shameless he was…They don’t care about how customer may feel if he later comes to know about the fact…Customer is unfortunately being taken for ride in India to the core…..! Customer satisfaction here is just a Joke and no one wants to see smile on the customer’s face who is actually the reason for their business, profits and lot more! I would certainly question the banker (the manager with whom I spoke) about this…will wait what funny reasons he has now! Interestingly, they still did not switch the interest % to Base rate on my Home Loan (submitted the application along with 1% fee on 5th May 2012). I even followed up on this literally every day except just today!! I bet they wont behave the same way if it was to adjust their own home loan! I have lost confidence on SBI (I know they are least bothered anyway) and I’d better shift my accounts to another bank – would leave the home loan until I close it. While they have all of my contact information, they chose no to proactively approach me with the offer to Switch to Base rate!!! In my view the bankers really are nothing less than smart looters! After all it is my hard earned money!!
Dear Sir,
I can understand your feelings but as i mentioned the sole objective of banks is to make profit not customer satisfaction..Customer is just a scapegoat & a channel to make profit…Only way to come out of this is cycle is to keep a tab on recent developments so that we can safeguard our interests as consumer..
Thanks & BR
Nitin Bhatia
Dear Mr. Bhatia
Your post is extremely informative and insightful. You have done a great service by explaining the finer nuances of banking, which most bankers fail to clarify, for obvious reasons.
I would much appreciate your advise on my current predicament. I have a home loan from HDFC where my current ROI is 11.75% and principal amount outstanding is nearly 26,00,000/-. I would like to take advantage of the reduced interest rates and hence approached HDFC to enquire about re-financing my loan through another lender. To my surprise, I was informed that the fee for re-financing will be 2% of the principal outstanding. To my understanding this is a violation of RBI / NHB guidelines!! Please advise what is the best course of action in this regard.
Also, HDFC has offered a ‘rate conversion’ where my ROI can be reduced to 10.5% by paying a fee of 0.5% (of outstanding) + Service Tax. I have been informed that the ‘spread’ will be changed to 6% from current 4.75% and the current RPLR is 16.5%. Could you please educate me on the impact of this ‘conversion’, and if this will benefit me in the long run.
I am considering having my loan refinanced by SBI @ 10.5% with a processing fee of 0.5%. However I can only do this if HDFC does not charge me a re-financing fee, as indicated.
Much appreciate your feedback.
Regards
Surabhi
surabhigupta_2000@rediffmail.com
Dear Madam,
Thanks for ur kind words and i am glad that u liked the post..To answer your queries
1. HDFC demanding 2% fees for Re-Financing:
As your loan is on Floating Interest therefore HDFC is wrong in demanding penalty….For Floating Home Loans irrespective of source of fund i.e. either Re-Financing or Own source, HDFC cannot levy any penalty. Even on their website they mentioned the same…It seems they are taking advantage of customer’s ignorance so that customers will not shift Home Loan..Pls find link of HDFC site & its clearly mentioned that for Adjustable Rate Home Loan or Floating Home Loan there are no Prepayment Charges
http://www.hdfc.com/others/prepayment_charges_housing_product.asp
2. Is it beneficial for u to shift to lower interest rate by paying conversion fees:
To understand this, lets evaluate 2 scenarios
Scenario A: You continue paying 11.75% interest for 73 Months then your interest outflow will be approx 10.50 Lac over 73 Months
Scenario B: You pay conversion fees of approx 14600 (0.5% of ur outstanding amount + ST) and shift to 10.5% interest rate…By doing this your loan tenure will reduce by approx 3 months assuming u will keep EMI constant. Your total interest outflow will be approx 8.81 Lacs & if u add fees of Rs 14600 then your total outflow will be approx 8.96 Lac
Considering above 2 scenarios, its beneficial for you to pay conversion fees and shift to lower interest rate as you will save approx 1.54 Lac in interest during loan period.
If u pay Rs 14600 Conversion fees today then you will recover the same in approx 5.5 months through saving in interest..Only catch if u close ur Loan before 5 months then u will be at loss.
3. As you need not to pay fees for Re-Financing (As explained in point 1) then is it beneficial for you to shift to SBI:
SBI is offering you rate of 10.5% and you can avail same rate in HDFC by paying approx Rs 14600…When u shift your loan to SBI then besides paying processing fees of 5000+ST (as ur loan will be less then 30 lacs), you will undergo whole lot of loan processing hassles and complete loan process will be repeated once again..Since your loan tenure remaining is just 6 years and secondly u r not gaining at all financially by this shift & u can avail lower interest with HDFC itself (Same interest as offered by SBI) therefore in my personal opinion & if i would have been in your place then i would not have shifted my Home Loan from HDFC to SBI.
Hope i answered all your queries…Pls feel free to contact me for any other Home Loan issue
Thanks and Best Regards
Nitin Bhatia
Thank you so much for answering in such detail. I feel confident now that have an expert’s opinion and have decided to avail the HDFC conversion offer. Thanks once again for your time.
I am in a similar situation. The above story looks like mine. I have benefited from this information. I’ll go ahead with increasing my spread with HDFC.
Thank You. This blog is really helpful.
Dear Sir,
You may go ahead with Bank of Baroda..As u have not mentioned ur loan amount so i can’t comment whether you are getting good deal or not.
Normally it makes sense to change ur loan provider if ur loan outstanding period is more than 5 years and you are getting benefit of atleast 2% in interest rate i.e. new interest rate should be lower then 2% from existing interest rate.
You can calculate the net benefit with the help of amortization schedule..You can download the same (EMI Calculator) from useful link section on right hand side. Hope i answered your query.
Best Regards
Nitin Bhatia
VERY GOOD BLOG
Hi Nitin,
Very good blog and more informative. I am currently looking for home loan and it is for construction purpose not buying any property. Can you please suggest me the best bank and the current interest rates available?? What imporatant point i need to keep in mind before deciding the banker?? I have not surfed any other blog because your blog stuck me going further. Kindly help me to get the best benifits.
Thanks,
Shashi
Dear Shashi,
Thanks for ur query, just to answer the same. As i understand, you would like to avail loan for construction purpose on land but u have not specified whether loan is required for Land+Construction both or only for construction & you already have land…Anyways in both scenario the only difference is that loan for land purchase is normally 0.25%-0.5% costly compared to Loan for Construction.
Honestly speaking there is no perfect home loan provider but you can get fair deal with SBI or any other PSU bank…Only flip side is SBI & other PSU banks are very stringent on documentation part, which is good also becoz post SBI verification, you can be assured on the title of property…SBI do very stringent check on title of property to avoid any legal hassle.
As u have not mentioned the loan amount but the best interest rate under 30 lac loan is 10.5% and between 30 Lac to 75 Lac is 10.75%
While deciding banker, few things to keep in mind is whether past interest rate movement is linked to Repo rate or not..For this you can request bank to share base rate movement and repo rate movement u can get on RBI’s website. Secondly bank has centralized database or not, i mean that you shud be able to access your loan account from any branch of bank..It shud not happen that u need to rush to Home branch for any transaction…Last but not the least, Many banks lend on the registration value whereas Sale value is higher than registration value. The reason in order to save stamp duty, the registration value is kept @ Govt Guidance Value. Pls clarify with bank regarding this.
Hope i answered your queries.
BR
Nitin Bhatia
Hi Nitin,
Thank you very much for the information. I need loan for construction purpose only, I have the plot. My required loan amount is from 45 to 55 lakhs but my loan eligibility is only 35 lacs max; but some one told me that I can got for yuva loan in SBI where my age should be with in 35yrs and I am 33yrs now. If I go for this Yuva loan the SBI will consider the tenure for 20yrs and give 4 to 5 lacs more; so I may get around 38 to 40 lacs approx. Do you have any idea about this?? Is this good option to choose?? Can I go for Yuva loan?? My repayment is not the problem here but I need 40lacs for construction which i am not eligible are per my take home salary. Kindly suggest.
Thanks in advance.
Regards,
Shashi
Dear Shashi,
Hope u r aware of the flip side of SBI Yuva Loan…Just to highlight that your interest outflow will be higher in SBI Yuva Loan becoz for 1st 36 Months SBI will only recover interest from u and there will be no principal deduction, In short if ur loan amount is 35 Lacs then after 3 years also ur loan outstanding will be 35 Lacs so compared to normal loan, the interest of 1st 36 months is additional outflow from ur end without any principal payment.
Secondly, you can get additional 20% loan from ur eligibility therefore if ur eligibility is 35 Lacs then u can get upto 42 Lacs in loan (at the discretion of bank) & another point is maximum tenure in SBI Yuva Loan is 360 months i.e. 30 years but again its at discretion of bank..Normally, working age is considered till 58 years and u r 33 yrs now so i feel bank give give u loan for 25 years..If ur loan tenure will increase from 20 years to 25 years then u can avail higher loan amount..Just cross check with SBI on this point.
Thirdly, you can also increase your loan amount if ur CIBIL score is good…Normally banks don’t lend to people with CIBIL score of less than 750 but if ur score is 825 plus then ur loan eligibility might increase based on ur good CIBIL score..Just check with bank on this part.
In my personal opinion, u shud also check with Pvt Bank like Axis bank, which is more flexible in its approach compared to SBI, specially in cases like yours…If Axis also refuse then u can consider SBI Yuva Loan but just keep this as last option becoz of clause that for 1st 36 months u will only pay interest rate, which will increase ur interest outflow.
Hope i answered ur query
BR
Nitin Bhatia
Hi Nitin,
Thank you very much for the info, i really did not know about this Yuva loan clause. I’ll try to find and get back to you for any query. Thanks for your time and guidance.
Regards,
Shashi
Dear Shashi,
Your age is 33 years so some bank can offer you loan term of 20 Years. If your gross monthly salary is 80000/- or higher so you are eligible for 40 lacs loan with 20 years term. Also loan amount depend on your construction estimate cost. Loan will be calculate 80% of construction cost.
Hi Nitin,
Today I had been to SBI and Corporation Banks. In SBI I checked about Yuva loan and they mentioned that it is same as of other loans, means the tenure will increase from 15 to 20 yrs and the interest rates are same as of todays – 10.75% above 30 lacs. The exact EMI starts from the day of possession of the residence till then I will be paying only the interest for the disbursed amount for construction. Not as you mentioned above that after 3yrs my principal amount would remain same. But I may get around 37 to 39 lacs upon my take home salary and also i need to show that I am renting out a portion of my home say for Rs.15,000 per month.
In corporation bank the rate of interest is 11% pa and I may get my required amount loan of 40 lacs for tenure of 20yrs.Here I need not show any renting out portion. As per the present rate of interest they prefer to go for floating interest rate which I also prefer.
Can you please advice in this case, what is the best option?? If any other related information is relevant to my case please let me know.
Thanks in advance.
Regards,
Shashidhar
Hi Nithin
Your blog is very informative . I have a query. I have home loan from HDFC where my current outstanding balance is 16,000,000 and my current ROI is 11.5% (spread is 5%) . I am planning for a part payment (4L) as well as “rate conversion”.
Please advice me on what order i should go ahead to get the benefit.
1.First Part payment then changing conversion rate (or) 2. changing conversion rate and do a part payment
Also advise me if it is beneficial to go for refinancing from other banks or HFC
Dear Nila,
Thanks for ur query and to answer the same…It is advisable to first make the part payment and then go ahead with rate conversion as HDFC charge conversion fees @ 0.5% of loan outstanding amount + Service tax so if u make part payment of 4 Lac the ur loan outstanding will reduce to 12 Lac…Conversion fees in this case will be approx 0.5% of 12 lac i.e. Rs 6000 + Service Tax.
If u go ahead with rate conversion before part payment then ur conversion fees will be 0.5% of 16 Lac i.e. Rs 8000 + Service Tax.
Secondly, You have not mentioned ur EMI amount but in case If u r planning to pre-pay or close your loan of 12 Lac in 4-5 years then you might not save much in interest compared to conversion fees, you are paying upfront. In that scenario, it is advisable to retain interest rate of 11.5% instead of paying conversion fees.
You have not mentioned your Loan Outstanding period, which i assume will be more than 5 years still personally i will not suggest you to refinance your loan becoz your new interest rate will be around 10.5% and you will gain only to the extent of 1%. Instead you pay conversion fees and lower the interest rate in HDFC.
Refinancing of loan is advisable, only if the difference between Old and New Interest rate is 2%, Loan Outstanding period is greater than 5 Years and existing lender refuse to lower interest rate…In your case it is not advisable to refinance the Loan.
Hope i answered your query.
Best Regards
Nitin Bhatia
Dear Nitin,
Thank you so much for spending your valuable time in replying to my query. As you suggested I have made a prepayment of 4L. And now my outstanding principal is almost 12L for the remaining term of 67 months. My EMI is 23700. With above given situation please advice me whether I can avail rate conversion or continue with the existing rate of 11.5%. Also could you please give some information related to the recent news that the government has extended the subsidy for the next financial year. What this subsidy is all about and the benefits to us. Thanks in advance.
Regards,
Nila
Dear Nila,
In my opinion, u should go ahead with conversion from 11.50% to 10.50%. i have done calculations and based on info provided by u. If u convert ur loan to lower interest rate then you will save approx 57926 Rs in interest during next 67 months provided you will not make any prepayment for remaining term of 67 months and also will not pre-close ur loan. You need to pay approx conversion fees of 6000 + Service Tax.
Also to add, you will recover ur conversion fees in 7 months time by way of saving in interest rate. In case u pre-pay ur loan within 7 Months then u will be at loss.
Lastly, the extension of subsidy announced by Govt is not applicable for u. Subsidy of 1% on interest rate is only applicable on housing loans up to Rs 15 lakh, where the cost of the house does not exceed Rs 25 lakh.
Hope i answered ur queries
BR
Nitin Bhatia
Dear Nitesh,
I will suggest you to go ahead with any bank, whose interest rates is linked to Base Rate preferably SBI. The Interest rate of both LIC and HDFC are linked to their respective BPLR / RPLR & its at their discretion to revise it or not. HDFC has given wrong info to u that interest rate will change with RBI policy. They change interest rate but only for New Customers not for Old Customers by increasing spread over BPLR but not by reducing BPLR which benefit existing customers.
Secondly HDFC has not told you that over & above approx 11k Processing Fees, you need to pay 1% of Loan Amount i.e. 4.6k as stamp duty for franking of their one of internal document, they refer it as 3rd party Mortgage document..Just cross check with them on the same.
Thirdly, i will not advise you to go for fixed loan as interest rates will fall in future.
Lastly, if project is approved by LIC and HDFC then it is not necessary you have to take loan from either of two…You can still avail loan from any other lender…Only thing is u have to go through less hassles with LIC and HDFC becoz they have verified the project but if u go ahead with any other lender like SBI then they will deeply study the project before approval.
But if you have to select only between LIC and HDFC then i will recommend you to go ahead with HDFC.
Hope i answered your query.
BR
Nitin Bhatia
Hi Nitin,
The information provided by you is very useful…i need your advice in my case i am planning to take loan of 27 lakhs for my new flat booked in Bangalore and my project is approved by LIC H F. LIC provided me following details…10.4% floating it will increase to 11.9% within one week to three months and…10.7% for 2years fixed and 11.15 % for five yrs… please suggest me what do I do should I go for lic or other nationalised bank? Please explain me the BPLR /RPLR in case of LIC their RPLR is 14.40%.
Dear Priyanka,
Just to add that you must be getting rate of 10.4% under some offer and as u rightly mentioned, it will be limited period…Most important point to check is after offer what will be your spread/spread on RPLR after offer period. Ideally your spread/discount should be 3.9% so that u get market interest rate of 10.5% (Currently SBI is offering 10.5% for loans under 30 lacs).
If ur interest increase to 11.9% in some time then it seems LIC is offering u a spread/discount of 2.5%. In this i will strongly suggest you that you should not take Loan from LIC becoz u will be paying interest which will be 1.4% more than market rate.
Secondly, Interest rates from here will not increase but will decrease only therefore i will not recommend u to go ahead with 10.7% fixed for 2 years or 11.15% fixed for 5 years.
Lastly even if project is not approved by any other lender except LIC still u can apply for loan with any other nationalized bank like SBI or Bank of Baroda..Just to add you should not avail loan above 10.5% interest as this is the best rate offered by almost all lenders for loans under 30 Lacs…LIC is cheating u by offering 10.4% for limited period and then will increase to 11.9%.
Hope i answered your query.
Best Regards
Hi Nitin,
Its really gr8 that you are helping all of us guys with your expertise. thanks a lot again.
Actually I too booked a flat in hyderabad and applied home loan from LIC housing finance. they are giving me initial 10.4% interest rate. my loan amount is 30 Lakhs. today they gave me loan offer and EMI was mentioned as 32824 which is according to the 11.9% rate of interest. executive didn’t gave me all details before and collected a initial check of 5600 rs for processing fee. which has been already debited from my account.
When I asked him he told its special discount they are giving is 10.4 after that it will be as per market. but when I forced him to tell me the actual floating rate he told its 11.9. then I started seaching for information and found your blog and got that the same issue was with Priyanka. I hope she didn’t have paid any amount to them.
can you please suggest me what should I do further as I have paid 30% processing fee, still he is asking another check for 11300 for complete processing fee + 3000 rs as cash.
shall I ask them to give me Fixed interest rate with 10.7 for 3 years. which is good instead of paying 11.9 after 3 month.
even though RBI can give some relief in home loan interest rate, I feel the actual rate will be more then 10.7.
Please advice me for the best.
Thanks again.
Dear Mr Nithin
I appreciate your effort to shed some light in the Home Loan fiasco.
I would like your advice regarding refinancing my home loan.
My story as follows.
I took out a loan of 468000 Lacs from a HFC in May 2011. Offer ROI was 9.75%(floating) with a tenure of 15 years. The EMI is 49600.00. The RPLR at sanction was 17% with a spread of 7.25%.I already purchased the flat and completed the registration.
They increased the ROI to 11% with their current RPLR 18.5%.But the tenure has been increased to further 16.9 years despite me paying the EMI for 11 months.
I would like to switch/refinance my loan with SBI who is happy to refinance it at ROI 10.75%(floating).They have an offer with processing fee Rs 1000.00(1K).
They said they have two products ie Term Loan and Maxigain (which I don’t know much about).And my property /project is SBI approved.
My question is
Will I benefit from refinancing the loan?
Do I have to pay any prepayment charges to the HFC when I refinance my Home Loan with SBI?
I appreciate your advice regarding this. In hindsight I wish I have known about you and your blog earlier.
It will be my mission to share your advice with all my NRI and non NRI friends.
Many Thanks and Best Wishes
Dear Sir,
Thanks for your query. I have studied ur case and in my opinion, It is not beneficial for you to refinance the Loan from existing 11% to 10.75%. In case of refinancing you need to account various other charges like 0.1% stamp duty of Loan Amount for franking of mortgage agreement, Legal charges etc. Ideally refinancing makes sense if u r getting atleast 2% lower interest rate then existing rate.
Just to add that as ur EMI is fixed therefore your Loan Tenure is increased to 16.9 years. I suggest you to keep ur tenure fixed and may be take a small hit by increasing EMI, reason being if ur tenure increases then ur interest outflow also increase. You can request HFC to increase ur EMI and keep tenure constant.
As u have not mentioned your HFC therefore i can’t comment about prepayment charges but to add that as per national Housing Bank directive, HFC’s cannot charge pre-payment penalty from customer irrespective of source of fund.
Hope i answered all your queries
BR
Nitin Bhatia
Thank you Nithin for your time for looking into my case.
I will certainly follow your advice and request to keep the tenure constant.
My lender is DHFL.
Can I make regular/irregular adhoc payments on top of EMI to pay off my debt earlier and hence benefit on reducing the interest outflow? Either with SBI or DHFL?
My concern is my current lender(HFC) is increasing the ROI according to its whims and fancies without any notification. Went up from 9.75 to 11% over 3 months.
SBI is saying they can refinance my loan with the following charges?
ROI – 10.75%
Processing fee – Rs 1000/
Valuation Fee- Rs 2000/
Stamp Charges – Rs 500/
Is there any other advantage with SBI over HFC ie following the RBI base rate ?
SBI being a scheduled bank , will it not be a bit more transparent in its dealings?
Please help me to sort out this dilemma.
Many Thanks
Dear Sir,
Thanks for ur mail and just to answer ur query, You can prepay ur loan on adhoc basis provided your are paying from own source in DHFL but if u prepay more than 20% of outstanding loan in a financial year by borrowing from financial institution then u need to pay penalty of 2%.
Where is in SBI there is no penalty either for prepayment or pre-closure irrespective of source of fund.
You were paying 9.75% interest rate under special offer valid for 3 months only and as i understand u were then moved to market linked rate. Dont worry on this part as all customers who availed loan before Aug’11 are paying interest rate of 11% so u r paying market linked interest rate. Current rate of 10.75% is only applicable for new customers.
As u mentioned ur lender is DHFL therefore just to add that if u transfer ur loan from DHFL to any other lender then u need to pay 3% of balance amount to DHFL for transferring loan. Pls find following link with details
http://www.dhfl.com/loan-resources/services-and-charges/
Also SBI is one of largest lender and all other lenders including HDFC follow SBI in fixing interest rate but unfortunately SBI is also not 100% transparent in its dealing. On April 17, RBI reduced Repo rate by 0.5% but SBI has not reduced the interest rate despite its loan rate being linked to Base Rate therefore it is not guaranteed that u will get fair and transparent dealing in SBI.
I request you to monitor ur interest rate with DHFL and may be in future if u feel DHFL is increasing ur interest rate where as interest rates are dropping, you can take a call at that time to re-finance the loan.
Also u need to keep in find 3% penalty for re-financing.
In my personal opinion, i strongly suggest you to drop the idea of re-financing the loan at this moment else it will be loss making proposition for u financially
Hope i answered ur query
BR
Dear Mr Nithin
Thank you. I am very clear now.
I am requesting the lender to fix my reduce my tenure as I pay and not fix the EMI as you suggested.
Also may be pay regular adhoc payments so that it does not exceed the 20% of the balance per year.
Many Thanks again and regards
Sunil
Dear Sir,
Just to clarify, as i mentioned u can pay any amount on adhoc basis for your own sources but if u finance the same from any financial institution then u can pay only 20% of outstanding loan without any penalty.
Dear Nithin
Can I bother you for one more advice?
I want to prepay part of my Home Loan from my NRE account ( EMI is paid from the same account). Is there any way I can do a NEFT transfer via online banking to my HFC ie DHFL? Or is there any other shortcuts than cheque by post or in person?
Thanks in advance.
Best Regards
Sunil
Dear Sir,
You can use NEFT to transfer funds from NRE account subject to the adherence of FEMA and Wire Transfer Guidelines.
I doubt you can prepay ur loan through NEFT as none of lenders provide this service still you can check with DHFL on same..There is no shortcut to this, Its better to send the cheque to any of ur relative or friend in India who can personally deposit the same & collect payment receipt.
BR
Nitin Bhatia
thanks for the info its very nice but i wnt to know what is ur conclution wethere we need to go for HFC or RBI ?
My conclusion is that its better to go ahead with Base rate offered by banks like SBI etc rather BPLR / RPLR offered by HFC’s like HDFC, LIC etc.
Hi Nitin,
I am trying to apply for Can Fin Homes Rural Housing Scheme. I want to know whether it is based on BPLR or base rate. Can you please share if you know?And at this point of time, I am not aware of the risks from availing a loan of 15 lakhs from Can Fin Homes Rural Housing Scheme. Any suggestion in this regard is truly appreciated
Hi,
Can Fin Home Ltd is Housing Finance Company therefore interest rates are linked to BPLR/RPLR not the base rate. Under rural housing scheme they are offering interest rate at 9.75% for loans upto 15 Lacs. I think ur property value is less than 25 lacs.
If ur property value is less than 25 lacs and u need loan of just 15 lacs then u can get loan from banks also at the rate of 9.5% to 9.75% by availing the interest subsidy of 1% given by Govt of India in this scenario. It is also referred as one per cent interest subvention for home loans up to Rs 15 lakh.
My personal opinion is that u take loan from SBI which is linked to base rate and u can demand subsidy of 1% on existing rate as your loan is 15 lacs and property value is within 25 lacs. Your interest rate after subsidy will be 9.5% as SBI is currently offering interest rate of 10.5% for loans under 30 lacs..
Thanks
Nitin Bhatia
Hi Nitin,
Today I had been to SBI and Corporation Banks. In SBI I checked about Yuva loan and they mentioned that it is same as of other loans, means the tenure will increase from 15 to 20 yrs and the interest rates are same as of todays – 10.75% above 30 lacs. The exact EMI starts from the day of possession of the residence till then I will be paying only the interest for the disbursed amount for construction. Not as you mentioned above that after 3yrs my principal amount would remain same. But I may get around 37 to 39 lacs upon my take home salary and also i need to show that I am renting out a portion of my home say for Rs.15,000 per month.
In corporation bank the rate of interest is 11% pa and I may get my required amount loan of 40 lacs for tenure of 20yrs.Here I need not show any renting out portion. As per the present rate of interest they prefer to go for floating interest rate which I also prefer.
Can you please advice in this case, what is the best option?? If any other related information is relevant to my case please let me know.
Thanks in advance.
Regards,
Shashidhar
Dear Shashi,
I have checked the website of SBI and there website also mention that for 1st 36 months only interest will be charged under SBI Yuva Home Loan & regular EMI will start from 37th month..Pls find following link for reference
https://www.sbi.co.in/user.htm?action=viewsection&lang=0&id=0,1,20,115,741,847
I come across lot of cheating cases in this regard so i request you to cross check and verify once again…You should not feel cheated after taking loan.
If u r sure that ur regular EMI will start from day 1 in SBI Yuva Home Loan then u can go ahead with SBI otherwise Corporation bank seems good option becoz if u will pay only interest for 1st 36 months in SBI then you will be at huge loss on interest front.
Kindly cross verify once again
Thanks
Nitin Bhatia
Hi Nitin,
I have problem, my site/plot is revenue site; so is it possible to get loan on revenue sites from Nationalized banks (SBI, AXIS, HDFC…etc)?? If not, can I go for Co-operative banks?? Kindly suggest where can i get loan for construction purpose??
Thanks in advance.
Regards,
Shashi
Hi Nithin,
I am planning to take housing loan of 35L. Two of my choices are SBI or HDFC both offering interest rate of 10.75%. Processing fee is also almost similar 10-11K. If I am taking loan from SBI to avail loan of 35L I need to register the property @ 44L. In this case I need to pay around 6.65% of total value as stamp duty/registration. Also I need to take term insurance and property insurance ( one way it is good ). If I am going with HDFC I don’t need to register the property at total value but can do it at guidance value fixed by government. I will be saving more than 1L in this case. Also the insurance part is optional with HDFC , so can save another 80K there. If I am taking the loan for 15y which will be better option in long run. I do have plans to make per-payments as well.
Thanks
S.Menon
Hi,
SBI approve loan based on Registration Value and HDFC approve based on Sale Agreement Value. Secondly its advisable to go for property insurance. Term Insurance of Loan is optional and is very costly compared to normal term insurance. It is not mandatory as suggested by SBI. They are just trying to make commission by selling Loan insurance to u. You should go for any normal term insurance.
Based on details shared by u, i will suggest you to go ahead with HDFC as it is more beneficial in monetary terms compared to SBI.
All the Best
Nitin Bhatia
Dear nitin, many thanks in advance for your informative comment.My case is as follows
I have finalized a property( old house of 28 years) and looking for a loan of 40L. Had approached SBI bank for the same but SBI was requiring a 28 year old original document for verification as per their guidelines.Same was not able to be traced,thus i approached various other banks I want to choose betwwen HDFC and LIC housing finance . LIC is offering loan at 10.7% for 3 years and after that it becomes floating.Max tenure is 15 years and they are financing 80 % of the registered amount, Other option is to go for floating 10.4 % Processing fees is 0.5 % which comes to be about 20000 for 40 L loan.
HDFC is offering floating ROI at 10.75 % for 15 years. But they are offering that property can be registered at lower cost and the stamp duty will be reduced. and the balance margin money will be paid as per the market rate of property.
Want a suggestion from you , which bank to go for the loan
Brgds
Ashutosh
Firstly u have not mentioned, which document is required by SBI and is not available. i will suggest you to check with Lawyer whether document required by SBI is critical or not and can be ignored…Since u have not mentioned document details therefore i can’t comment whether its critical or not.
Secondly, if u have to select between LIC and HDFC then i will recommend you to go ahead with HDFC as LIC’s interest rate are around 1% higher compared to market rate..Initial discounted rate of 10.4% in floating rate plan is just valid for limited period..After that ur interest rate will be 11.9%. Thirdly its not advisable to avail loan with fixed interest rate for 3 years as interest rates will not increase from current levels & bound to decrease soon. With HDFC u will also save on Stamp Duty part.
BR
Nitin Bhatia
dear nitin, wrt my previous post , have got offer from axis bank also. 10.75 % interest rate and 0.5 5 processing fees. but in ur earlier post i saw that u have reffered that axis bank rates are governed by RBI and are much authentic. so kindly suggest me which bank to go for, axis bank,lic or hdfc
Out of Axis, HDFC and LIC..u can go ahead with Axis as Axis Bank’s interest rate is linked to Base Rate
Dear Ashutosh,
Just to add it is compulsory to pay stamp duty of 0.1% to register the mortgage document (Stamp duty vary from state to state) so it might be 0.5% in ur state. What axis bank is telling u is right.
HDFC is trying to mislead u on this front or DSA mght not be aware or new in system but they will also charge same amount for purpose of registering ur mortgage document.
Taking insurance is not compulsory and its optional. Its ur choice whether u want to buy or not..I will not recommend u to buy Loan insurance rather u but pure term insurance of loan amount, which will be much cheap and also cover will be fixed against depleting cover provided in Loan insurance.
Just to add Interest rate on renovation loan will be higher compared to normal interest rate therefore u will be paying high interest on 3 Lac.
As per RBI/NHB no lender can lend more than 80% of Cost of property excluding Stamp duty and registration amount…You can cross verify with HDFC in this regard as DSA might promise u moon but after u pay processing fees they might approve lower amount..Just check with them how they are going to approve loan more than 80% of cost of property. In rare case HDFC take exception and approve 80% of total amount i.e. including Stamp Duty and Registration but still u cross verify & cross check before deciding.
In ur case you can go ahead with either HDFC or Axis whosoever approve 40 lac loan for u but if both are ready to approve only 80% i.e. 37 lacs then u go ahead with Axis but tell axis bank clearly that u dont want to purchase insurance.
Nitin, it was a good article. You have clarified to me many points of interest. I now understand how the loan system works.
It is very good article and thanks for sharing this.
I have just availed (in the month of June 2012) housing loan from LIC and have opted LIC for the sole reason of their integrity over other private banks.I fell into same trap of floating inetrest being offered as 10.4%. How much would be the Rate of Interest after 3 months introudctory offer ?
I am just wondering if it would have been a better option to opt for 3 ys fixed / 5 yrs fixed, as the fluctuation in interest rates would not have been much. Now that the damage is already done, please suggest what I could do here, to keep the ROI in control.
As per my knowledge after introductory offer your interest rate will be 11.9% (As i have not seen ur Loan Agreement therefore request you to cross verify with LIC).
Now if u move from current option to 3 yr or 5 yr fixed, u need to pay conversion fees to LIC. Secondly, if LIC move you to 3 yr or 5 yr fixed option without conversion fees then also i will not recommend you to move to 3 Yr / 5 Yr option as Interest rates are on declining trend. Last week SBI dropped Home Loan Interest Rates.
In my personal opinion, u shift ur Home Loan to SBI, if ur loan is less than 30 lacs then ur interest in SBI will be 10.25% i.e. just 0.25% above SBI base rate of 10%. If loan is above 30 Lacs the ur interest will be 10.4% which is also cheapest rate as of date. When Base rate will fall, u will be at maximum advantage as ur mark up will be lowest at 0.25%.
Thanks for your reply. How easy is it to move the loan to SBI. What is the additional cost involved here and will be there be whole process starting documents verification / Legal opinion etc for shifting home loan as well ? Any idea what would be the typical time taken for this whole process. Incase if shifting of loan to SBI is time consuming, Do you suggest any other alternatives here. (I am not keen on going with any private organisations).
Transferring Home Loan is as good as availaing new Home Loan. Specially SBI is very stringent in its evaluation process. You need to pay 10k+Service Tax (If loan is above 30 lacs) or 5k+Service Tax (If loan is below 30 Lacs) to SBI as Processing fees. Besides this u need to pay 0.1% of loan amount as stamp duty to register mortgage agreement.
Whole process will take between 2-3 weeks time. Unfortunately all PSU banks take this much time only. Alternatively u can transfer your loan to Axis Bank, which will process bit fast with less hassles.
Thanks for your response and is really helpful
Hi Shashi,
You can avail loan from SBI and name of the loan is “SBI Realty”. Construction of House should begin within 2 years from the date of availing “SBI Realty” Loan.
Union Bank of India also provide loan for Construction of House.
Hope i answered ur query.
Thanks
Hi Nitin,
I am sorry, i think I was not clear in my last post. I have purchased the revenue plot/site and now I am looking for home loan for construction purpose. SBI lends loans only to the BDA sites. Mine is revenue site so I am worried where I can avail loan for construction.
Regards,
Shashidhar
Dear Shashi,
I am sorry to say but getting loan for construction on Revenue Site is very very difficult. Still u can try with some independent 3rd party loan agents (Who have tie up with various banks).
If u wish to try on ur own then u can check with DHFL/Tata Capital/Federal bank/Syndicate bank/Karnataka bank/Andhra bank in the same order.
Probability of getting loan is high with 1st 3 in the list and that too will depend on your salary and title of the land.
Thanks
Hello Sir,
Firstly, Let me thank you on behalf of all the loan buyers for whom this blog is a big boon.
I can clearly understand from this blog that Institution which loan on Base rate is the best one.
But as discussed earlier in this blog if the choice narrows down between LICHFL and HDFC then as per your suggestion HDFC is a better option.
Like in my case HDFC is offering loan at 10.70 fixed for 3 years or 10.75 floating from first year. which will be better between two seeing the present interest rate.
There is also a plan for 3-10 years fixed at 11.00%.
I am planning for loan amount of almost 40 L.
Also as hdfc offers loan on RPLR, how exactly can i know that what will be the interest rate charged after 2-3 years.
Also i am trying to avail loan from Oriental Bank of commerce.
But the interest rate offered by them is 11.25 (10.50+0.75) –> 10.50 being the base rate.
Bus as this project is not yet approved by OBC , so will have do all legal scrutinizing first.
Also OBC is asking to open a fixed deposit in their bank.
Frankly speaking being a buyer i am really scared.
Kindly suggest.
Thanks,
Kunal
Hi Kunal, Thanks for ur query and to answer the same
1. I will recommend you to avail Floating Home Loan @ 10.75% becoz in all probability interest rates will not increase further & will only drop in future
2. There is no way to predict exact interest rate movement after 2-3 years. With further cut in repo rates, interest rates will decrease only. Entire industry follow SBI in this regard. Once SBI will cut rates then everyone will follow the suite to remain competitive in business. Even if interest rates are reduced for new customers & not existing, you always have an option to pay conversion fees and reduce your interest rate.
3. I will not recommend you to avail loan from OBC
Thanks
Sincere thanks for your quick response sir…..
It really helped me to make my final decision.
Have applied the loan with hdfc ltd. on floating rate with the hope that rates may go down. :-).
First of thank you for the great article. It shows how banks hide soo many thing and literally fool the customer. Now I would sound like a fool here, but I need to correct it out. I have taken a loan from DHFL in the year 2005 for 12 lakh with the floating rate interest of 7.5 and now you won’t believe it has come to 15.5. After lot and lot of inquiry they have given me the RPLR rate which is 18.25 and I have the spread of 2.75. I know nobody would be paying such a high interest rate. Now, how can I know that they have the correct RPLR rate given and is this not controller by RBI. How can other back have the max interest rate as 12% and I am being made to pay 15.5, which is almost like a personal loan.
Also I decided to switch over. The best bank I can think of is HDFC and SBI.or if you can suggest something else too. HDFC has many offer like fixed rate for 10 year, Floating Rate. But after the attack I got from DHFL, I inquire a lot. when I ask them to send me on mail that the fixed rate won’t change in any circumstance, they were not ready and stopped calling me :)
But SBI just has the Floating rate @ 10.25 which is daily reducing. I am not sure how long it will take to process, but need your valued opinion. First, is DHFL charging me the correct rate. How can I really know that they are not fooling me..or I have no options. Obviously to switch over, what bank will you prefer.
Dear Shashi, RPLR rate is same for all customers but difference is in spread. As ur spread is 2.75 therefore you are paying interest of 18.25 – 2.75 = 15.5%. If someone is paying 12% then his spread must be 6.25%.
If u wish to know current spread then call the customer care of DHFL as a new customer and check with them interest rates currently offered. If they are offering 11% to new customer then current spread is 18.25 – 11 = 7.25%
I will not recommend u to go for fixed rate as interest rates are bound to fall sooner and secondly fixed interest rates are not truly fixed, bank can change it at regular intervals called reset period.
After checking on current spread as i mentioned above, u may approach DHFL and request them to increase your spread to current level. They may charge conversion fees for same, which can be 1% of outstanding loan amount. If they increase your spread then ur interest rate will fall and your interest rate will be at par with current rates.
If DHFL don’t agree to increase ur spread and reduce ur interest rate then u can switch to SBI, if ur balance loan tenure is more than 3 years. You can approach SBI for same. Switching loan is not that difficult and secondly ur gains are high as ur interest will reduce from 15.5% to 10.25% which is huge saving for u.
Hope i answered ur query
Thanks and BR
Nitin Bhatia
Thanks Nitin, that answer my query. Thanks a lot.
Dear Nijo,
Conversion from BPLR to Base Rate is free but it seems bank is charging 1% of outstanding loan amount for movement to lower interest rate from existing 13.5%. I request you to once again clarify the same from bank.
BR
Nitin
Dear sir,
Your article is very good. Please see my home loan status and tell me is it correct or not. According to me now bank is deducting more EMI and showing excessive out standing of my loan and more EMI of the loan. Home loan has sanctioned for me for under construction Flat on Aug. 2009.
Cheque had been issued to the builder as below
1) 7,35,300 on 10.09.2009
2) 3,60,000 on 20.11.2009
3) 2,50,000 on 18.01.2010
4) 2,50,000 on 27.03.2010
5) 2,50,000 on 27.09.2010
6) 0.34,000 on 26.11.2010
Total loan amount was 17,30,000 had given by bank to builder
My first EMI of the loan was deducted by the bank from my salary account in the month of oct. 2010 and that was 16077 and after six month it was 17000 and after six months it was 18,750 and from the month of october bank is deducting 19752 EMI from my salary account. and on 4-10-2012 balance amount shows 18,81,154.
I have paid approximately 4,50,000 to the bank till month of Sep. 2012
Bank is showing me out standing amount is 18,81,154 and 263 months are showing to pay the EMI. Is it correct or not.I have taken that loan for 240 months.
I feel bank is exploiting me.
Loan amount is 1730000/-,
Margin 15%, Rate of Interest is 9.25% p.a. (BPLR) is applicable for me according to the sanction letter of the bank. Please guide me.
Thanks
suresh
As per my calculation ur balance as on Sep’12 should be 1619502.86 and total tenure of loan should be 154 Months (If interest rate is 9.25% over last 2 years).
It seems you have not mentioned interest rate correctly…As per your calculation shared by you, i feel interest rate must be much higher then 9.25% as mentioned by you. As u mentioned this interest rate was mentioned in sanction letter therefore it must be changed in last 2 years (Definitely would have increased).
Pls check with your Bank/HFC regarding interest rate changes during last 2 years then only we can check whether u are being charged correctly or not.
BR
Thanks Nitin for writing interesting and informative article. That’s really useful. I understood the insight of the housing loan system; how they consider the rate of interest and all.
With respect to HFC, all I understood is, they will provide a separate ‘spread’ to each customer. They keep changing the spread whenever RPLR changes.And due to that, new customer will always get the latest and cheap rate; but old customer will not get any benefit.
I didn’t understand that why do HFC set the separate spread for each customer, (similar with respect to bank) ? Why can’t they directly apply the new rate of interest to all customer rather than just for new customer and unnecessary charging for conversion to old customer?
Regards,
Hitesh
Dear Hitesh,
The profit of HFC is directly proportional to interest rate charged from customer. Consider yourself to be lender, customers giving interest rates are more profitable compared to customers giving lower interest rate. HFC’s earn profit from interest rates charged to customers therefore they don’t reduce interest rate for old customers. They can’t refuse lower interest rate to old customer so they charge conversion fee for same (Its better to have something then to have nothing)
BR
Hi, it’s very informative article and help me to understand basic of lending, I like to know where I can find regular update of Base rate & Bplr
Thanks
Srivatsan
Dear Sir,
You may check out the website of respective HFC/Bank to keep track of Base Rate & BPLR.
BR
Hi Mr.Nitin,
Thanks for this brilliant article. Its very useful for those who are new to some banking terms such as BPLR, RPLR etc.
Today i enquired for home loan at HDFC & Bank Of India.
HDFC offered me
ROI: 10.25% RPLR:6.25%
Processing Fee: Rs.10,250
BOI offered
ROI : 10.50%
Processing fee: 18,000
BOI didnt had RPLR, but they are chrging hefty processing fee. HDFC is offering less ROI. I doubt why HDFC is offering such low ROI when BOI being a PSU is offering higher ROI.
Do they have any hidden costs?
Can u please suggest which option would be better?
THanks,
Sachin
I will recommend SBI and currently they are offering lowest interest rate among all.
If u would like to select only between HDFC and BOI then u may go ahead with HDFC. In case of HDFC, only hidden cost is that they will ask you to stamp/frank the Sale Agreement with 1% of Loan Amount.
Tks
Thanks for your prompt reply. I’ll also check with SBI.
Hello Sachin,
It is always advisable to Nationalized bank not to HDFC , ask HDFC how they will reduce if there is a change in rates, they will ask you to pay 0.5% of your outstanding to reduce, they will never communicate this information to you during the loan process, I am one of the victim and already filed a case on the same.
They are not under RBI directly they under NHB but they never communicate this to customer
Hi Nitin,
First of all, Thank you so much for such an informative article. For first-time home loaners, this is an eye-opener. And selflessly informing people about something which normally banks / HFC hide is really commendable :)
As you have guessed it right, I’m a first timer too and wanted a home-loan in urgent basis for my under-construction property . Due to which I completely relied on the HDFC sales guy to provide with all the documents he wanted + putting sign on the home loan form with maximum information ( which sometimes i thought was un-necessary to ask or inquire ). After reading the blog, I’m thinking there are various things which I’ve been ignorant about my loan, like :
1. HDFC guy didn’t put any loan amount while i was filling the form and over the phone informed me that as per my eligibility, he had mentioned it 28L ( my property cost is 44L, whereas i wanted a loan of 27L only and my monthly gross is 55k )
2. Interest rate that i’ve been informed to be charged with will be 10.25% but now i know that HDFC current BPLR is 16.5%, hence my spread is 6.25% but agent hasn’t informed me anything regarding this fact.
3. I’ve NO clue about the Registry charges or third party mortgages charges to be levied.
4. banks like AXIS are still not financing the my project but are assuring me that they will got approved hence i should complete the approval process but i’ve gone through with HDFC as they are financing the project.
hence i’m in a confusion state what to do. Your blog and replies to various queries suggest to choose loan from banking instiutions and be closer to base rate but with HDFC, this will not be the case and I;m not sure abt Axis Bank at this stage. Kindly reply on the various points i’ve discussed and would remaining with HDFC would be a good option for me in longer run ?
Cheers..
R Singh
Just to add that even if project is not approved by any bank, still you can avail loan from same bank. Project approval by a bank or HFC only means that that particular Bank or HFC has completed due diligence of the project & u can avail loan with less documentation.
Also it is not clear whether u signed Home Loan application or Home Loan agreement. If its Home loan application then all the info mentioned by u like BPLR, spread etc is not mentioned in application. All this information is mentioned in loan agreement.
If u have signed the loan agreement then you need to cancel the loan and your processing fees etc will be forfeited.
Regarding interest rate, currently HDFC is charging 10.25% for loans below 30 lacs.
Registry charges vary from state to state and 3rd party mortgage charges is 1% of loan amount but again may vary from state to state.
I request you to approach SBI and Axis Bank with documents of your project and just check why they are not providing loan for your project.
I will prefer SBI for home loan as they are more transparent and honest in their approach compared to others.
Thanx for fast reply Nitin Sir :)
Issue is SBI is not approving loans in that area and Axis has started taking forms for loans of that area but they will disburse in somewhere in late November, but yes have heard corp. bank is disbursing for loans of that area.
Due to this, I started my process with HDFC on 23rd Oct as they are disbursing and my installment is due in 1st week of nov. Nothing related to BPLR or Spread was mentioned by HDFC person who came for formalities to me but now i’m feeling being cheated bcoz as per HDFC site, they change RPLR every three months ( which obv. most of the times means increasing ) and in 1 or 2 yrs time, i’ll be thinking to transfer the loan to some banking company or adjusting my spread.
Kindly suggest, would it benificial for me to wait for some time to take loan from Axis bank ( and paying 21K fine to builder ) or should continue from HDFC and start with 10.25% ROI and may be in next 1-2 yrs time adjust with paying 0.5%of loan amt left ( approx 11-12K ).
Once Again, Thanks for your valuable time and guidance & directions to beginners like us.
Just to add that its not RPLR which is changed every 3 months but ur interest rate is reset in 3 months i.e. if any change in RPLR or spread during this period then ur ur interest rate will change.
it seems, currently only HDFC is financing your project so u don’t have any other option & paying a fine of 21k doesn’t make sense. If u can arrange Nov’12 installment from your own funds then u may wait.
Hi Nithin,
At present I hold a home loan of Rs 35 Lacs from LICHFL at ROI of 10.7% fixed for first 3 years and later it will be floating based on RPRL at that time. I am in the 2nd year of my loan payment now.I pay an EMI of Rs. 39,280 at present.
I got a deal from Bajaj Home finance now for the loan transfer with the following offer.
1. ROI will be 10.1%
2. Prompt payment reward, refund 0.5% of the interest paid annually for 3 years.
3. Part payment charges – Nil
4. Pre closure charges – Nil
5. Processing fee 0.5% of the loan amount
6. Loan coverage will be offered.
EMI
Loan — ROI — 10 years — 15 years — 20 years
100000 10.25% —-1336 ——–1090 —– 983
Please suggest me on whether I can proceed with loan transfer with BAJAJ or stick to LICHFL.
Thanks
Chethan
I have already answered this query. Tks
Hi Nitin,
I am purchasing a resale property for which i had to go for a loan amount of 16 Lac.But considering my salary bank is approaching me only 14 lac.
While a friend of mine has suggested to go for financing companies i.e GIC housing Finance
as they are ready to give me 16 lac for a period of 20Yrs with ROI 10.50% with base rate 12.75%
my details:
salary 27K
age 23
please do suggest me as i am confused whether i should go for GIC or not
regards,
sagar
Just to add that 12.75% is RPLR not a base rate. I will not recommend you to go ahead with GIC.
Dear Arvind,
To answer your query, i would like to add that SBI Home Loans are linked to Base Rate not RPLR. As your loan amount is small, i suggest you to pay conversion fees and lower your interest rate with HDFC becoz by switching your home loan, your will not save much. Lastly since HDFC is Housing Finance Company therefore their interest rate will always be linked to RPLR and you cannot shift to Base Rate.
Thanks and BR
Nitin Bhatia
Thank u sir for reply.
will do conversion ….bt wat if they increase RPLR in every 3month ….
on which basis they increase it ?
if my interest rate comes 11.5 in one year from this date, then wat is use of conversion sir.
Just to add that it is not necessary that RPLR is changed every 3 months. Last time HDFC increased their RPLR on 1st Aug, 2011 i.e. approx 15 months back. Only issue is they keep decreasing interest rate for new customers by increasing the spread.
RPLR is increased based on cost of funds, i have explained the entire concept in my other posts. you can check other posts in Home Loan Section for more details.
Probability of RPLR getting increased in near future is very minimal as interest rates will only come down in future. In all probability RPLR will come down & your interest rate will not increase from 10.25%.
ok sir ….
now will definitely do the conversion thanks for information.
thank u very much ….
Respected Sir,
I have lone with BOB and present BPLR is 14.75 so i can pay bank at present 11.75% per annum but bank offer new customer as 10.5%
Please guide me what i can do?
with regards
Mehul vyas
mbvyass@rediffmail.com
You can pay the conversion fees and reduce your interest rate to current levels i.e. 10.5%
Hi Nitin,
Its one of the most useful blogs I have ever come across.Thanks for helping so many people heree through your answers! I have the following query.
I have applied for Home loan from HDFC for 20 Lakhs nd got a mail recently that it is approved(Cost of property 70L and I have paid the developer 46L).I now need 4 lakhs more.Can I ask HDFC for 4 mre lakhs as Loan?(24 lakhs in total).The loan amont has not been disbursed,and I have not signed the loan agreement.
Regards,
R.K
Hi RK,
1st u need to check your loan eligibility from HDFC. If if ur eligibility is more than or equal to 24 Lacs then you can very much increase your loan amount to 24 Lacs. In short before loan agreement is signed, you may increase or decrease your loan amount depending on your loan eligibility.
Thanks & BR
Nitin Bhatia
Dear Nitin,
Thanks.You are doing a great job of sharing a very speacialized knowledge that people will find difficult to access elsewhere.In this world full of people who are trying to exploit the less knowlegeable customers,your blog gives us some hope through the topics discussed over here.Please continue your wonderful work.
Regards,
RK
IT is advice to purchase loan on Nationalized bank not on HDFC, they will never reduce the rates and only change the spread rate and asked you to pay more to change the spread, this not in any nationalized bank and LIC
They never share all this information to customer during the loan process, it is advisable to purchase loan in nationalized bank no need to pay any extra amount for loan reduction
Just to add that LIC is also governed by NHB therefore follow BPLR / RPLR system rather Base rate system followed by banks.
Thanks for your kind words and i am glad that you liked my bog…Thanks again :)
As ur loan amount is less therefore i suggest you to pay conversion fees and lower your interest rate with HDFC. You shud reduce balance term and keep EMI same.
Hi Nitin,
Is it not a good idea to take these HFC’s to consumer court. Their agents give false information while applying for the interest rates etc.
It will not help becoz in legal document i.e. Home Loan Agreement, all Terms and Conditions are clearly mentioned. Normally borrower don’t read the same thus feel cheated.
Hi Nitin,
Thanks for the detailed information.
I am planning to go for HDFC TruFixed loan which is now available at 11% PA interest, where as the current floating interest is around 10.25% for my category.
I am little bit confused which one to choose. As you mentioned in one of your comments below that fixed is not truly fixed and there is some thing called reset period. Is this true for the TruFixed HDFC Home loan?
The HDFC representative I met today never mentioned about this. I have the loan agreement copy for this loan type if you want i can mail it to you.
Please help me resolve my confusion.
Thanks,
Nagendra.
I will not suggest you to opt for Fixed Home Loan rather opt for Variable / Floating Home Loan. Reason being interest rates are on downward trend and in all probability it will fall further in coming days so why pay xtra.
If u wish to avail HDFC TruFixed loan then i would like to add that this loan is also not Fixed for entire tenure of the Loan. Fixed rate period in this loan is between 3 years to 10 years and HDFC will decide at its own will that for you what will be fixed rate period? After Fixed rate period, loan will move to Variable rate i.e. RPLR -Spread. Pls note that in all probability for you HDFC will decide Fixed Rate period as 3 years only and secondly under thr TrueFixed loan the spread (Applicable after Fixed Rate Period) will be lower than Spread being offered today on Floating Interest Rate Home Loans.
Hi Nitin,
Thanks for your response.
Regarding your comment in second para: When will they decide the Fixed Rate period? They told me that my fixed rate period will be 9 yrs+ 1 yr floating (They told that its mandatory to have 1 yr floating incase of 10yr fixed).
Regarding TruFixed loan the spread applicable after fixed rate period: where is this mentioned? Can you point me to some document or do you have any first hand experience? I spoke to HDFC representative, according him spread for floating will be decided now only.
Thanks,
Nagendra.
Please check in Home Loan Agreement that your fixed rate period is 9 Yrs + 1 Yr Floating.
The spread after fixed rate period will be mentioned in your Home Loan Agreement.
Pls check with any cooperative bank or First Blue Home Finance / Tata Housing Finance.
Pls check with HDFC regarding mark up on base rate. Also check current base rate. Only after knowing mark up, i will be able to comment whether you will be benefited or not.
Now the spread increased to 6.5% and you can enjoy Interest rate of 10.25%, as RPLR is 16.75%.
Unfortunately only for new customers :( Just to correct RPLR is 16.5% and Spread is 6.25%.
Hi,
We had taken loan from HDFC of 27 lakhs at 9.25% in Nov 2009. 15 months back they increased the interest to 11.75% and we had asked them to increase the emi and had been paying the incremental amount since then. However we recently noticed that they had increased our tenure as well from 20 years to 21 years, without any intimation to us as to when they did so,
We checked that there is an option to refinance it at 10.25% where our tenure will decrease to 14 years with same EMI and a fee of 6.5k.
Please advise if we should go for refinance or not, Also what is the guaranteee that they will not increase our rate further to same in near future and whether it makes sense to pay addition fee for refinance.?
Request your urgent resposne as we are planning to refinance soon.
Hi,
Just to correct that your interest rate has not gone up but interest rate of new customers is reduced. Your spread must be 4.75% on RPLR of 16.5%. The spread for new customer is 6.25% therefore interest rate of 10.25%. It is beneficial for u to refinance your loan.
Also if interest rates will come down then new customers will get benefit and again your interest will be higher then interest rate for new customer. There is no guarantee for same.
Hi Nitin ! Great Blog ! Very impressed ! I am also facing similar situation as that of Isha. I understand that there is no gurantee that for new customer there will not be even lower interset rate with offer of higher spread. However, don’t you feel RBI should not allow this exploitation of old customer as HFC do not offer linkage to base rate. For old customer interset rate increases very fast but does not decrease with decrease in base rate. How can we avail true and transparent floating rate from HFC?
Hi Nitin,
I had taken a loan from HDFC of 23 laks at 11% variable rate in Aug 2007 for. It was mentioned that the the rate would change from time to time as its RPLR would be applicable to the loan. I had been following it for a few yrs after that and it did keep changing every 3 months.
After a while I stopped checking and kept paying the emi regularly. But just last month I checked on the interest rates and noticed that they have been charging me a fixed 13.5% rate since Sep 2011 until now. When I brought this up with them, they just say that I might have been offered the loan at a discounted rate then, and now it has been adjusted. I fail to understand this, because it is not mentioned anywhere in my loan approval and conditions about the discounted rate. And I remember the prevailing rate than was around 11% with almost all banks.
Please advise.
Hi,
HDFC loan interest rate is dependent on BPLR and spread offered to the customer. When you took the loan, the spread offered was low and after that BPLR is increased over a period of time. It seems your spread is 3% & current spread is 6.25%.
You can pay conversion fees and can get your spread increased from 3% to 6.25%. You loan interest rate will reduce from 13.5% to 10.25%. Kindly approach your nearest HDFC branch for same.
Hi Nitin,
Thanks a lot for the info. Does this mean that every time RBI changes its rate, I’ll have to pay HDFC to change its rate too? Then what’s the point in opting for a floating rate loan.
its a hard fact of home loans. HFC don’t favor lowering of BPLR or RPLR rather reduce the spread for new customers.
Hi, Nitin, yesterday HDFC reduced its RPLR. To avail changed RPLR, is it necessary to pay processing fees?
No, you need not to pay processing fees or conversion fees. It will be automatically adjusted on your next quarterly reset date.
Thank U Nitin….!!!!
Hi Nitin – Thanks for the education on this. Does that mean HDFC will never reduce the BPLR and instead will increase the spread ( to accomodate new rates) and to get the benefit of reduced rates, we will have to pay 0.5% of outstanding and increase the spread?
Right Amit, this is how they make profit. I am sorry but this is hard fact of Home Loan.
Hi Nitin,
I had taken a Home Loan in 2009 from SBM at 2.75% below PLR. Since last two years I always felt that rate of interest of 12.5% that I was paying was higher than the market rate of around 10.5%. I did discuss about this with my Branch Manager but she never gave a clear reason and insisted that 12.5% interest on my home loan was right.
Finally last week I decided to dig deep and was thus informed by RACPC that after RBI guideline in in April 2010, the basis of rate of interest was changed to Base Rate from PLR. For existing borrowers it said
==
In case existing borrowers want to switch to the new system, before expiry of the existing contracts, an option may be given to them, on mutually agreed terms. Banks, however, should not charge any fee for such switch-over.
==
In this situation can I insist Bank to change the basis of Rate of Interest on my housing loan retrospective as the bank failed to inform me about the new guideline from RBI ?
Thanks for your advise.
Regards
Kaushal
We need not to beg the bank for same. Pls write an application on blank paper addressing branch manager request to link your Home Loan to Base Rate from existing BPLR/RPLR. Take 2 copies, submit 1 to bank and use 2nd as acknowledgement by taking stamp and sign of person who received the same.
Your interest will not change retrospectively becoz the onus is on buyer to request for same as there was no such clause in RBI guideline.
You shud write an application to bank to shift your Home Loan from being MRR linked to Base Rate Linked as per RBI guideline.