Rush: Cheap home loans will end in two months

Your home may be unaffordable, but your home loan still is. But rush. The State Bank of India (SBI) has said that it will continue the scheme till June 30, 2010, but it could end there. ICICI Bank says it is not extending the scheme that ended on April 30.

SBI has extended the scheme with changes. For loans taken after April 30, the interest rate charged will be 8% for the first year and 9% for the second and third years. From the fourth year, the rate charged on loans up to Rs 50 lakh will be at a discount of 2.5% to the benchmark prime lending rate (BPLR). Home loans above Rs50 lakh will be at a discount of 2% to the BPLR.

 So, if after three years the BPLR is 12%, the interest rate charged on loans up to Rs50 lakh will be 9.5%, and 10% for loans above Rs50 lakh.

SBI had initially launched teaser home loans last August for an initial period of three months. The scheme was extended till March 31 and then again till April 30, 2010, following huge customer demand. According to experts, this may be the last time the scheme will get an extension, and the reasons may be partly technical.

Banks currently offer home loans at interest rates which are lower than their prime lending rates (PLR). The Reserve Bank of India is trying to stop banks from this practice. A new base rate system will be introduced from July 1, 2010, which will not allow banks to lend below the published rate. The base rate is expected to be 8-9% and banks will not be allowed to lend money below this level.

In such a scenario, if a bank wants to continue the scheme, its base rate will have to be low enough to accommodate teaser rates. “After June 30, we will have to figure out if we can accommodate it as by then the base rate will be in force,” said an SBI official from SBI.