SBI FlexiPay Home Loan is a new Home Loan product from SBI. SBI is the country’s largest lender. Obviously, i was expecting a lot of buzz around SBI FlexiPay Home Loan. I also shared in my post, why borrowers prefer SBI Home Loan. As usual, my friends from personal finance space jumped the guns to declare it is as the best product around. I will not get into the nitty gritty of SBI FlexiPay Home Loan. I hope all potential borrowers must have gone through the same. It is always important to analyze a product from end user perspective rather being a seller/marketer. The objective of this blog is to give right perspective so that you take the right decision. All financial decisions should be backed by financial logic.
The USP of the SBI FlexiPay Home Loan is 20% more Home Loan eligibility. In short, if under normal home loan your home loan eligibility is Rs 100 then under SBI FlexiPay Home Loan it can be up to Rs 120. As a borrower, you need to calculate at what cost you are getting this additional eligibility. This product is only for salaried individuals with min 2 years experience therefore, there are lot assumptions being made under SBI FlexiPay Home Loan. I would have highly appreciated if SBI would have stated all such assumptions in the brochure. Don’t worry, i will share the same for the benefit of the readers. Thirdly, some of the analysts are comparing it with most hated Teaser loans launched in 2008. SBI FlexiPay Home Loan is not a teaser loan but somewhat similar to that. I will discuss it later in detail. Lastly, this product is old wine in new bottle. It is similar to step up loans. HDFC Ltd and few other HFC’s already have a similar product.
SBI FlexiPay Home Loan – How it Works?
It’s a simple math. The borrower will not pay principal amount during the moratorium period. A moratorium period is a period during the loan term when the borrower will be exempted to pay principal. In other words, it is waiting period. It is technically Pre-EMI period. The borrower has the option to select moratorium period from 36 to 60 months. In short, the borrower has the option to pay only interest on loan amount for 3-5 years. Therefore, from a financial perspective if the borrower is buying a property of 35L. He is availing home loan of 28L and selected moratorium period of say 48 months i.e. 4 years. After 4 years, the principal outstanding will remain same i.e. 28L. Assuming, he will pay EMI of roughly 25k per month then 12L to be paid during 4 years will be only interest component.
Now you must be wondering, how home loan eligibility is increased. It’s a trick. EMI consists of principal + interest. The total EMI outflow should not exceed 50% of net take home salary. Considering the example mentioned above. Assuming my net take home salary of 50k. If i opt for normal Home Loan product then my EMI of 25k will be break up of 5k towards principal repayment and 20k towards interest. Now under SBI FlexiPay Home Loan, the principal component will be Zero and Interest is 25k then by default Home Loan eligibility will increase by 20%. The home loan eligibility will be calculated considering EMI of Rs 31,250 i.e. principal component as Rs 6250 and interest as Rs 25k. Whereas in actual the principal component will be zero because of moratorium period. The principal repayment will be pushed 3 to 5 years ahead with certain assumptions on salary and income part of the salaried employee. The calculations under SBI FlexiPay Home Loan are more complex but i tried to explain with a simple example.
SBI FlexiPay Home Loan – Why you should Avoid
Increase the Cost of the Property:
As i keep highlighting that real estate sector is going through a bad phase. The returns are either stagnant or negative. Under this scenario, interest outflow of home loan further increases the cost of the property. Therefore, the net cost of the property increase. Under SBI FlexiPay Home Loan, as you will pay only interest during the moratorium period. Therefore compared to normal home loan, interest outflow will be much higher in SBI FlexiPay Home Loan.
In the example, mentioned above you will pay 12L interest that implies a cost of the property at the start of Full EMI will be 35L + 12L i.e. 47L. In other words, property cost increased by 33% compared to normal home loan. The interest outflow may increase with an increase in interest rates. After recent RBI policy review, i am of the opinion that we are at the bottom of the interest rate cycle. The only hope of further rate cut depends on the implementation of Marginal Cost of Funds based Lending Rate.
Teaser Home Loan:
Though SBI FlexiPay Home Loan is technically not a teaser home loan but from a financial perspective, it is teaser loan. Under teaser home loan, the rate of interest was low for a fixed period. When the home loan shifted from fixed to floating, the revision of interest rate increased EMI of a borrower. Unfortunately, the interest rate was on an upward slope. A borrower found difficult to pay the increased EMI’s. It increased NPA’s of the bank. SBI FlexiPay Home Loan is a sort of teaser loan as the EMI will be increased/stepped-up after the moratorium period is over. Therefore, it is offered only to salaried individuals with an assumption that salary will increase during the moratorium period.
The second similarity is that when teaser loan was launched by SBI in 2008 the interest rates were low at around 8.5%. When the borrower shifted to floating interest the interest rates increased to around 10% plus. As i mentioned, currently interest rates have bottomed out. Therefore, if interest rate follows the same cycle as of 2008 then the borrower will be in a fix after 3 to 5 years. This time shocker will not be an increase in interest rate but the addition of a principal component to EMI. If interest rates increase during this period then EMI will be much higher as the bank will have to close the home loan as per pre-decided tenure. The addition of principal component will be directly proportional to increase or decrease in Interest rate during the moratorium period.
Another co-incidence, the market entered a bear phase when teaser loan was launched in 2008 and so as this time :).
Prepayment Shocker:
As i shared that practically principal outstanding will remain same during the moratorium period. Once the borrower will decide to prepay the home loan, it will be the biggest shocker for him. Though product clearly mentions that borrower will pay only interest during the moratorium period. The borrowers will fail to understand the practical implication of same. Even today i receive queries from borrowers that they already paid XYZ amount but principal outstanding is not moving.
Job Stability and Regular Increase in Salary/Income:
These are the two basic assumptions behind SBI FlexiPay Home Loan. Therefore, it is being offered only to the salaried individuals. If god forbids and something goes wrong at borrowers end then the entire calculation will go haywire. A borrower will be in deep trouble on three accounts i.e. Principal outstanding is intact, Home Loan is 20% higher than normal and Full EMI will start after moratorium period. In short, this product is only suitable for borrowers with a stable job and an assured increase in income/salary at a regular interval like Govt employees. Job scenario is not that great in private sector as i shared in my post, can you rely on your job?.
Profitable for Bank:
This product is super profitable for the bank. At first place, the bank will be able to lend 20% more compared to normal loan. Secondly, the bank will be assured that average home loan tenure of a loan under SBI FlexiPay Home Loan will be higher than average 8 years. Roughly, you can add moratorium period selected by the borrower to average home loan tenure. Therefore, if under normal home loan i would have closed the home loan in 8 years. SBI FlexiPay Home Loan will be closed in 12 years if my moratorium period is 4 years. It means higher interest income for bank thus higher profitability. Lastly, by increasing the home loan eligibility. Bank will create an EXIT barrier for borrowers. The reason being, borrower’s eligibility with other banks will be lower for balance transfer. In short, the borrower will not be able to transfer the home loan.
Words of Wisdom: If i have to explain SBI FlexiPay Home Loan in one sentence then i will say that you are borrowing more than your comfort zone. It is based on fulfillment of certain assumptions. If the assumptions go right then nothing wrong with it but if it goes wrong then it’s a doom scenario. I shared some of the points, a borrower should consider. You should check all the pros and cons before signing on the dotted line.
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Very informative and so immediate action after 2-3 days of introduction of this scheme by SBI.
tHANKS sIR.
nice article nitin ji
Sir , is 36 months fixed or it is like 36 months or date of registration , whichever is earlier ? Please suggest.
The moratorium period is fixed. A borrower can select between 36 to 60 months.
Surprising calculations for salaried class.
Is maxgain account facility available under SBI flexipay home loan?
No. These two are different home loan products.
I asked to one of the SBI bank people. and they said that Maxgain facility is available with SBI flexipay home loan.The only difference is that the interest for maxgain is always 0.1% more than normal home loan.if normal home loan ROI is 9.4% then Maxgain’s ROI will be 9.5%.
I don’t think so. Flexipay and Maxgain are 2 different products. Please check following link
https://www.sbi.co.in/portal/web/personal-banking/home-loan-products
Respected Sir,
I and my father both had taken joint home loan from state bank of India to buy a
house.Deed of House is registered on my father’s name only while we both
are co borrowers of the loan (First loan applicant: My father Second
loan applicant: me). After one year my father wishes to add my name in
deed also. so that we may become co owner as well as co borrower. Can it
be possible. if yes please tell me the procedure. I shall be very
thankful to you for this act of kindness.
please reply soon
It is not possible as the property is mortgaged.
Hello Sir my take home salary is 30000 and I don’t have any current loan eligibility is 18 Lakhs but due to SBI flexi pay I get 21.5 Lakhs should I take personal loan of 3.5L from salary a/c ICICI or go with flexi pay. Do let me know if I can prepay 5-7 K in principal amt. in SBI flexipay.
I will prefer SBI flexipay home loan in this case. You should go through all the terms and conditions. You can prepay without any penalty.
Tarun soni assumption about flexi pay is quit good viz. new job holder will not get a good deal(as needed) as home loan sanctioned due to entry level salary, so it can raise their stake in esclating the loan amount, also tax benefit like 80c(principal amt) is not applicable until completition of project,only 24a (interest amt.)is deducted which in flexi pay scenario will be only interest amt.. lastly prepayment of principal amount lateer after pre emi yr would reduce the difference in normal home loan vs flexi pay…need ur expert comment sir :)
At macro level, SBI flexipay means over borrowing. If a borrower is confident of salary hike, job stability and other factors then he/she may opt for SBI Flexipay Home Loan.
Hello Sir,
I am facing this weird issue with SBH.
I have taken a home loan of Rs 3500000 and opted for OD Max gain account. Since i was self constructing my home, the loan disbursal was periodic and the bank would do and inspection of the construction each time and release loan installments. They released a total of 3050000 in 3 installments. So, technically the pending balance is 450000.
There was some 10% municipality mortgage on the house as part of the rule book so the bank put the remaining 4.5 L disbursal on hold until the Municipality clears the mortgage.
Meanwhile, they initially also offered 1 yr moratorium for EMi and i did opt for it and decided that i will transfer monthly interest into the OD account whenever possible.
Construction went on and the house is now complete and i submitted all clearances from the municipality to SBH for disbursal of the remaining 450000.
Since i did not transfer interest into the OD account periodically, the interest accumulated and the available balance reduced to about 2.9L over the last year.
Irrespective of the available balance due to the accumulated interest, i was under the impression that the bank was going to disburse the balance 4.5L amount from my sanctioned loan. However, the bank manager argues with me that he will only disburse the available balance and not the pending 4.5L. He says i was supposed to pay the interest rate every month which does not make any sense to me since i was on moratorium.
Since i do not understand the technicalities to discuss with the bank manager, i am trying to get some clarify on what my approach should be. Can you please help?
Your query is not clear. You have not mentioned whether the interest of 1.6L i.s. 4.5L minus 2.9L is charged during moratorium period or after moratorium period is over. You need to clarify from bank when the moratorium period started and when it got over. Secondly, interest is charged for what period. After clarification on these details, we can decide next steps.
Hello Sir, Thank you for your response. The interest is amount accumulated over the last 1 yr (moratorium feb-feb) for the amount disbursed so far. So, since the loan of 30.5 lacs was disbursed over several months, the interest was based on how much amount was disbursed.
Post moratorium, any interest added every month is adjusted against the EMI i am paying since february.
Any interest charged for moratorium period is illegal and you can request SBI to waive off the same.
Hello Sir.
I have hbl from Sbi. emi deducted regularly from my salary account.To day the bank manager asked me to submit 5 cheque ..blank in amount to branch..He told that Audit section complain. about that. But I am afraid about that. He told that this is mandatory for getting hbl..but i am very very afraid….pls help me
thanking you
sam
Banks may ask for couple of cheques as a security against home loan amount. I will not suggest to handover the blank cheques. Normally banks ask for 2-3 cheques equivalent to EMI amount and one cheque of maximum home loan amount.
Hello Sir,
I had taken under construction property and applied for home loan for 35 lac . SBI agent from which i approving home loan he said that ” in moratorium period you can pay prepayments or part payments with no penalties” but accept him no one is confirming that this is possible.
So what should i do ? i am helpless. Please help me.
You can mail your queries to loan manager and take email confirmation. Also ask for copy of home loan agreement to check any prepayment penalty.
Thanks . I will do same
Which is better
1.Home loan in pnbhfl for 21 L of tenure 22 Y @9.3% floating
OR
2.Home loan in sbi flexi pay (in general home loan scheme they ready to give 17.5L) for 21 L tenure 25 Y @8.65% floating
PLEASE NITIN SIR REPLY,I am 25 years boy so I have very basic knowledge about these.
It depends on your home loan requirement. I will prefer to avail 17.5L as a regular home loan from SBI.
But I need min 21 L.
Okay. In this case, you may go ahead with SBI flexipay home loan.
But it would create a loss of 5 to 6 lakh .Also pnb hfl decrease their roi to some extent.I will go ahead with that hfl.May be after 2 year I will transfer this loan to SBI,so i can minimize my loss to some extent.
There are multiple assumptions in your case. I suggest you to do financial calculations under different scenarios and then decide.
Sir, Which is better home loan on the following two
1.Pnb hfl , 21 L home loan @roi 9.3% floating
2.SBI flexi pay , 21 L home loan @ roi 8.6% (3 year moratorium period)
Both in floating Interest rate
Now my intake salary is 34k per month ,after 3 or 4 months it will be 50k per month.
Sir please reply.
Hi Sir,
I have taken SBI flexi loan where moratorium period is of 3 Year. I have taken possession of my flat. My salary was less when I applied for home loan but Now I have got increment. I want to close my maratorium period now. I have spoken witth branch manager and he told me that it is no more possible before 3 Years.
What can I do now? I want to reduce my principle amount also.
I have answered this query in my post. You cannot reduce/close moratorium period. The branch manager is right.