FINANCIAL PLANNING PRESENTATION ON

Home Loan HDFC, SBI

Prepared By, Parth Jariwala (107110592017) Janak sinh Solanki (10711059200 Yogesh Raval (107110592004)

HOME LOAN
"It was Never so easy to build your Presented By own house

Take a house loan and let the monthly rent (easily converted into affordable EMIs) build you your dream home.

Introduction to Home Loan

A roof over one's head and ground beneath one's feet count as the bare necessities of life. Theres nothing quite like owning a home, however humble, to give one that warm and glowing feeling. But when one buys a home, one has much more than a feel-good purchase in mind: its also a crucial investment decision, perhaps the biggest spending decision of one's life. There are ample opportunities today for young salaried investors to plan their moves early and buy a house at the right time and at the right price. But many either spend a lifetime saving to purchase a house or exhaust money on monthly house rents.

Overview
How

do I calculate the home loan amount I will be eligible for? What are the documents I will have to submit to the lender? What is the EMI I will need to pay to the lender? Which lender will offer me a better rate for my home loan? Should I go for fixed rate or floating rate home loan? Will it be beneficial for me to shift my existing home loan to a new lender or I should stay with my existing lender?

home loan lender?

Prepayment fees Fixed or Floating interest rate Processing fees Check your loan eligibility with various banks

Highlights

State Bank of India (SBI) was the frontrunner with its special 8 per cent home loan scheme till it was challenged by Housing Development Finance Corporation Ltd (HDFC). So what does HDFC offer to outdo SBIs much-publicised scheme? HDFC offers new home loans at a fixed 8.25 per cent rate for the first three years SBI loans are available at a fixed 8 per cent rate for the first year and 8.5 per cent for next two years There is a marginal difference in the effective interest rates of both the schemes

SBI vs. HDFC

Here, we have analysed HDFC and SBI offers in terms of interests paid in the first three years, total interest paid and effective interest rate for the complete tenure (refer Table 2 and 3). In Table 2, we see that there is a marginal difference in the first 3-year interest components of both the lenders. However, in terms of total interest payments, HDFC scores over SBI; HDFC borrowers save Rs. 75,683 in interest compared to SBI borrowers. The effective interest rate in case of HDFC comes to 8.69 per cent compared to SBIs 8.85 per cent.

However, in case of a Rs. 60-lakh loan (refer Table 3), interest component in the first 3 years varies considerably, i.e., 19.90 per cent and 22.34 per cent of the total interest paid for SBI and HDFC, respectively. If the borrower is looking to prepay his/her loan, SBIs offer would be a good bet in this case. SBI also scores over HDFC in terms of total interest paid, and thus, the effective interest rate comes to 9.69 per cent for SBI in comparison to 9.78 per cent for HDFC. Here, HDFC borrowers end up paying Rs. 70,348 more than SBI borrowers.

No Respite To Existing Customers

It is clear that these schemes are sales gimmick to lure new customers, for the banks have completely ignored their existing customers. These reduced floating rates are not applicable to the existing customers of both the schemes. In this condition, the existing customers can either renegotiate rates with their banks for a levelled interest rate or shift their loan to other lender for a better rate. Note that refinancing a loan may require a customer to pay prepayment penalty as high as 2 per cent.

Conclusion

The steady recovery of the Indian economy has spread cheer to almost every sector, and the real estate market is no exception. After going through a rough patch, it is regaining its composure. This is the time to buy a house for many, with the property prices coming down by 20-30 per cent and banks offering special rates to sell home loans and achieve their individual credit growth targets. SBI and HDFC, which control a sizeable portion of retail lending in India, are better placed to take advantage of these conditions with their special loan schemes. Both the festive rates seem to have marginal difference in terms of effective interest rates, however, borrowers are advised to read the fine print before closing a deal so that there wont be any regrets later.