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Before the festive season bids goodbye it's time for potential buyers to go home shopping, as demand for residential projects is picking up in the NCR on lower home loan rates

This seems to be the best time to fulfill your dreams of a beautiful home as loans are coming with low interest rates. The festival season has made public sector and commercial banks float attractive offers on home loans and that too, with competitive interest rates, improved funding for property value and flexible repayment options. Though these loan schemes include teaser rates for initial years, some lenders are giving an option to move to either fixed or floating rates in subsequent years. Most of these lenders have also waived off the processing fee for sometime.

The interest rates have fallen to about 8 per cent from as high as 13 per cent in early 2008. As the rates may start rising again in a few months, why don't you make hay while the sun shines? OP Bhatt, chairman of SBI, recently hinted that home loans could become dearer in the coming years. According to G S Vedi, CMD of Punjab & Sind Bank, " Interest rates are likely to harden over the next six months with the credit offtake improving and inflation moving into the positive territory." But before opting for the best home loan deal, don't forget to compare the available home loan offers according to your needs.

Lower interest rates

Home loans today pierced the interest rate floor of 8 per cent that the State Bank of India had set in earlier this year.

Among all the lending banks, Development Bank of Credit, which has a small presence in the home loan segment, is offering loans up to Rs 5 crore at the lowest fixed rate of 7.95 per cent for the first year and floating rates from second year onwards.

It was the SBI which again in August bettered the deal by offering loans up to Rs 5 lakh at a fixed rate of 8 per cent for five years. It also offered to charge 8 per cent for the first year on loans up to Rs 50 lakh and cap them at 8.5 per cent in the second and third years. Besides, it waived processing fees.

ICICI Bank launched a special offer for all new home loans. As per the new offer, the country's largest private bank will charge an interest rate of 8.75 per cent for loans up to Rs 20 lakh.

For loans of Rs 20 lakh- 50 lakh, the new interest rate is 9.25 per cent. Borrowing above Rs 50 lakh will attract 9.75 per cent interest rate. HDFC, the private bank who only deals in housing finance, is offering a floating rate of 8.75 per cent for loans up to Rs 15 lakh, 9 per cent ( Rs 15- 50 lakh) and 9.5 per cent for loans above Rs 50 lakh up to 20 years.

Industrial Development Bank of India ( IDBI) has reduced its home loan rates by 0.25- 0.5 per cent. A home loan up to 30 lakh would charge an interest rate of 8.75 per cent, while within the range of 30- 50

lakh would be 9 per cent and loans above 50 lakh would charge 9.25 per cent.

Bank of Maharashtra and Dena Bank introduced a fixed rate of 8 per cent for loans up to Rs 30 lakh in the first two years, while Canara Bank offered 8 per cent in the first year for Rs 30 lakh.

Union Bank of India and Bank of India are also in the race of providing special home loan offers to the customers. Bank of India comes up with ' Star Home Loans', which can be availed till December 31. For a loan of up to Rs 50 lakh, the rate of interest will be 8.50 per cent in the first year and 9.25 per cent in the second.

Union Bank of India offers home loans up to Rs 50 lakh. The bank will charge a fixed rate of 8.50 per cent for the first three years.

In addition to the above mentioned banks, Allahabad Bank, Punjab National Bank, ING Vysya Bank and Punjab & Sind Bank are the major lenders in India, which are offering attractive home loan schemes in the festive season. Around this time, many borrowers are also transfering their cases to the banks offering lucrative home loan rates. According to A C Mahajan, CMD of Canara Bank, " The demand for home loans is better than the past years. But at the same time, we are seeing many applications which are transfer cases ( from another bank)." But borrowers say such switch over is not easy. An IT professional, who had taken a Rs 8 lakh home loan from a private bank at 12 per cent, is trying to change account to a nationalised bank for sometime now. " I am half way through my EMI repayment and have been trying to shift my account for sometime now but it's not happening. First, the bank with whom I have a home loan said I have to pay a hefty penalty and transfer fees. After I agreed to that, they are now insisting that they need clearance from head office in Mumbai.

The bank is saying some more documentation needs to be completed and more procedures need to be followed.

It is quite frustrating." That's perhaps one of reasons why borrowers prefer nationalised banks over private banks.

Funding for property value

Since the Reserve Bank of India has cut lending rates to record lows and pumped in unprecedented amount of money into the system, the scene of funding for property value from the bankers has improved. Apart from expecting the reduction in interest rates, the home buyers are now also looking for relaxation of margin money or down payment norms.

Housing finance companies are now funding up to 80 per cent of the property value to most salaried people and in a few cases up to 85 per cent, depending on the credit worthiness of the borrower. This is more than the 70 per cent it used to lend a few months back.

Trying to tap the potential home buyers, some lenders, such as ING Vysya Bank and Punjab & Sind Bank, have reduced the margin money requirement to 15- 20 per cent from 25- 30 per cent towards the cost of the house on their home loans.

This leads to a borrower paying lesser capital than before. So on a home loan of Rs 25 lakh, a customer would need to pay only Rs 3.75 lakh now against Rs 6.25 lakh demanded earlier, where the margin norm is relaxed to 15 per cent from 25 per cent.

" Festive season is a time when consumers traditionally contemplate property investments. Keeping in mind this, we have relaxed the margin money requirements," said Sonalee Panda, Product & Marketing Head at ING Vysya Bank.

HDFC continues to ask for a contribution of 15 per cent towards the cost of property upfront. " We have always been doing lending based on income and not on asset value," a HDFC spokesperson said, adding that there won't be any further rest in this norm.

Are property rates still high?

Even as banks and housing finance companies have their festive offers of reduced interest rates, some leading builders not to be left behind, unveil their freebies and discounts. According to a study by Religare Capital Markets Ltd, demand for residential projects in and around Delhi is picking up on lower home loan rates, property price cuts by developers and job market recovery. Indian real estate saw demand for housing collapse from 2008 amid a global credit crunch and buyers fearing job losses. " Now that property prices have climbed down and the risk of job layoffs has diminished, the service class is likely to participate actively in property absorption, leading to a strong recovery in residential demand," Suman Memani, Associate Vice President, Religare Capital Markets, said recently.

But still many prospective buyers think that the price of the property seems to be a bigger deterrent than the availability of loans. " I have been looking for a property for last six months, the prices are still not affordable," said Arindam Bose, an employee of a multinational company in Noida, who has been looking to buy a home with three bedrooms, a hall and a kitchen. " Home loan rates and funding offers will be one of the last factors driving my purchase," further said Bose.

Ashish Khanna, senior executive at one of the companies in Gurgaon is also not so optimistic about the home loan market. He believes since these are specific period offers, this may not see a huge surge, as prices of properties have not come down as per expectations.

But to woo their customers during this festive season, some property developers have offered special discount on their residential projects in the National Capital Region.

So, before the real estate rates returns to its past glory, jump in at the bank's easy and lucrative financial schemes to buy your dream home.


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Publication:Mail Today (New Delhi, India)
Date:Oct 24, 2009
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