There are 2 kind of people i.e. Risk Taking and Risk Averse. Risk Taking people invest in Equity, Mutual Fund etc whereas Risk Averse people invest in FD’s, NSC, Debt Instruments etc. Majority of Indians are Risk Averse as they would not like to part away with their hard earned money due to volatility. They prefer low return but risk free debt investment tools. In short, Risk Averse people don’t like uncertainty and prefer assured, stable & predictive path. This is the reason, why debt instruments are more popular compared to equity.
While availing Home Loan this majority class of Risk Averse people prefer Fixed Interest Rate Home Loan. The prime reason for not selecting Floating Interest Home Loan is very high volatility in interest rate. Any change in interest rate may result in either Higher EMI or increased loan tenure.
Fixed interest rate home loan are beneficial during uncertain economic conditions as prevailing today. Secondly Fixed interest rate home loan promise financial stability. Lastly, Fixed Interest Rate Home Loan are beneficial during period of High Inflation as Floating Interest rates are high during high inflation period. In short, if you are planning to hedge your risk & hate uncertainty than its better to opt for Fixed Interest Rate Home Loan.
Recently, PNBHFL has come up with 3 different fixed interest rate options which are 3 years, 5 years & 10 years. The interest rate is truly fixed for the committed period without any reset clause. Currently, other home loan providers are offering Fixed Interest Rate Home Loan through following 2 options
(a) Teaser scheme: The loan under such schemes shift from fixed interest rate to floating interest rate after 2 or 3 years. I don’t suggest Teaser schemes.
(b) Fixed Interest Rate Home Loan: Though the loan is tagged as Fixed Interest Rate Home Loan but there is a reset clause in Home Loan Agreement. Under reset clause, interest rate is revised every 3 years. When interest rate is revised it come as a surprise for borrowers therefore these schemes are not truly Fixed Interest Rate Home Loan.
In comparison, PNBHFL is offering fixed interest rate Home Loan for 3 years, 5 years and 10 years without reset clause therefore it can be labeled as truly fixed interest rate home loan. As we know, Average home loan tenure in India is 7-8 years. By opting for 10 years fixed interest rate home loan from PNBHFL, borrower can hedge risk against any volatile interest rate movement for entire loan period. Moreover, borrower can achieve his/her other financial goals easily through proper planning as the financial commitment towards Home Loan is fixed for committed period.
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Thanks Nitin for sharing this important information.
I have one small query. Can I shift my existing home loan from SBI to PNBHFL fixed interest rate?
Please suggest
Regards,
Praful
Thanks for liking the post. Yes, You can shift your Home Loan from SBI to PNBHFL.
But there is a cluase ,you can repay max 25 percent of loan amount per year….
This is standard clause of all Fixed Interest Home Loans as Home Loan lender borrow funds for Fixed interest home loans for long term.
Hi Nitin,
I belv even HDFC Ltd had a Tru Fixed Product (for both Home Loan & Plot Loans)…..I belv they withdrew it recently….do u hv knowledge whether that particular product had a reset clause ??
Also,In general what is ur opinion on that product
You are right. HDFC launched it on independence day with much fanfare and was withdrawn immediately. There was no reset clause in Tru Fixed Home Loan from HDFC. In my knowledge currently only PNBHFL is offering such product. I suggest this product to those customers who are risk averse and who would like to hedge risk against volatile interest rate movement. Lastly financial commitment under Truly Fixed Home Loan is fixed for committed period, which is the prime concern of most of Home Loan Borrowers.
Why dont you prefer Teaser Home Loan schemes. One scheme that is currently going on is LIC HFL where the ROI is 10% for 2 years.
In Teaser Home Loan Schemes after the initial period, Rate of Interest suddenly jump by 1.5%-2% therefore RBI banned such schemes but some HFC’s launched them in different avatar. I am not in favour of Teaser Home Loan Schemes.
Hi Nitin,
A very informative blog, thank you for the same.
I am looking for a home loan. Would need your advice on the same. I’m planning to go for 15yrs tenure 40L and take home is 80k.
These are my queries:
1. Which is better bank for the loan ICICI vs HDFC.
2. In icici they are offering a teaser home loan with fixed rate of 10.25 for 2yrs, what is your view on this? Can we go for it or not? Even the processing fee is 3k with Icici whereas 12k with Hdfc.
3. In Hdfc when there is a rise in the interest they’ll collect some amount and then they will increase the RPLR, How about this in Icici? What happens if there is an increase in interest rates.
Thanks in advance.
1. ICICI Bank
2. I will not suggest teaser scheme. opt for floating Home Loan
3. Please check my following post
https://www.nitinbhatia.in/home-loan/floating-home-loan-bplr-vs-base-rate/
Hi Nitin,
I just posted in other forum of yours. I too am fascinated for PNBHL 10 years Fixed ROI. Though now i have another query:
if someone has 45 lakh cash with him/her and wants to buy a property. Which option would be better:
A. Use the cash amount to buy the property.
B. Go for Home Loan and simultaneously invest the cash amount (45 lakhs) in any scheme ( FD, or any other one)
Awaiting for your valuable response.
Thanks.
saurabh
The way to look at it as that if you are paying 10.5% interest on 45 Lac Home Loan and depending on Income Tax benefit as per your income slab, assume your net Interest rate is 9% after adjusting Income Tax benefit. if you are confident of generating return of more than 9% on 45 Lac cash invested than you should go for Home Loan and invest 45 Lac. In case if your returns after deducting income tax from the returns generated on invested amount is less than 9% than its better to divert 45 Lacs in property instead of investing.
Thanks Nitin. It really helps. :)
Sir,
LIC HFL is offering 10.10% fixed for 2 years and then floating (all including processing fee + MOE = 21.2k excluding particular taxes).
Axis is offering 10.25% (Base rate + 0% locked markup) (processing fee 11,236/-, disbursement documentation 2200/-)
HDFC is offering RPLR 16.75% – Spread (locked) 6.5% = 10.25% (processing fee 11,236/-)
Which one would you prefer for 35.5L loan for 20 year tenure?
thanks in advance
I have already answered this query. kindly do not post same query multiple times. Thanks for cooperation.
Hi Nitin,
Thanks for sharing your knowledge.
My Pleasure. Keep Reading :)
it is truly remarkable…… some of my friends has availed Fixed ROI from PNBHFL and are very happy for their decision that they have made the right choice….
Thanks for sharing your feedback..Keep Reading !!!
I have also applied for loan from PNBHFL (5 years fixed ROI). But with the customer has to go for property insurance. Nitin, can u suggest on how to negotiate on this. Thanks Raj
I hope by Property Insurance you are not referring to Home Loan Protection Plan. I always suggest and recommend to go for Property Insurance as it will safeguard the property against any natural calamities, fire and other perils. Banks insist on Property Insurance to safeguard their interest as property is mortgaged and if god forbids, in case of any natural calamity/loss due to fire etc cost of construction is fully covered under property insurance. Most the banks / HFC also mention in Home Loan Agreement that Borrower will cover the property against natural calamities etc through property insurance.
Property insurance is low cost cover and you may go for it.
PNBHFL is saying to go for insurance with ICICI Lombard. But there are premium rates are too high. Like for 30 Lacs, one has to pay 80k. They have some secure mind plan. How can I negotiate on this.
Going by premium it seems its a Home Loan Protection Plan not Property Insurance. Its your choice, you can refuse. Give it in writing that you don’t want to opt for Home Loan Protection Plan. You can also complain to IRDA regarding misselling / forceful selling of insurance. Another option is that you opt for it and return the policy during 15 days Free-Look period from the date of receipt of policy. Your premium will be refunded after deducting administrative charges.
You can also mention that if they insist on policy than you might shift loan to other Home Loan lender.
Hi Nitin,
First of all, thanks a lot for all the valuable information that you provide through this blog. It has been very useful and I learned a lot by going through some of the posts. I have a situation now and I am hoping you’d give me some sound advice. I am in the process of finalizing a flat purchase and I am thinking of going in for a loan of 50L. Without doing a lot of due diligence, I paid the upfront fees at LIC HFL since they were giving an attractive rate of 10.1% for the first two years. The sanction letter has been issued recently and I am yet to sign the loan agreement and proceed with the process. Now I am hearing a lot of negative feedback about LIC and I’m in a spot of bother at the moment. Can you please help me with the below questions –
1) The LHPLR in the sanction letter is 14.5%. It says that the fixed rate for 2 years is 10.1% and the floating rate after that period would be calculated based on the prevailing LHPLR at that time. It does not talk about the spread / discount / bps anywhere. Does it mean that my spread is 4.4% (14.5 – 10.1)?
2) Also, if after two years, the LHPLR goes up to 16%, will my interest rate at that time be 11.6% (16 – 4.4)?
3) You’ve mentioned more than once that you don’t prefer teaser schemes. Could you please elaborate the disadvantages of such schemes? If you have answered this question elsewhere, please send me the link for the same.
Thanks for your time
Vijay
1. No, your spread will not be 4.4%. Current spread offered by LICHFL is 2.5% therefore your interest will be (14.5% – 2.5%) = 12%. The whole catch is that spread is not mentioned in teaser schemes and customer is lured by the low interest rate offered initially i.e. 10.1%
2. If LHPLR increase to 16% than your ROI will be (16% – 2.5%) = 13.5%
3. Disadvantage i explained in point 1, the customer is lured with low interest rate initially and than a shocker to customer when interest rate move from fixed to floating. Assuming everything remains, your ROI will increase by 1.9% which is huge jump.
Thanks for the feedback, Nitin. Is it not a violation by LIC HFL to hide the spread information from the customer? I have reached out to them on this point, but have not heard any reply yet. Is the spread information available anywhere for everyone to see? If yes, I could use that to argue with the LIC folks.
Also, do you have any experience or opinion about State Bank of Hyderabad? They are offering 10.25% (pure floating) and I’m thinking of that option too. I spoke to the SBH manager once and he was telling me that they have a provision where if the interest rate goes up, say to 12%, the borrower can pay 0.5% of the remaining prinicipal amount and switch to the interest rate that is being offered to new customers at that point of time. Your thoughts on this please?
Thanks again.
LIC HFL is not sharing “spread” information in public domain. It will be mentioned in your Home Loan Agreement. As i mentioned Current spread is 2.5%.
The base rate of SBH (State Bank of Hyderabad) is 10.20% therefore they are offering Home Loan with mark up of 0.05%. Your Home Loan will always remain competitive and closest to the Base Rate of the bank.
At max, SBH can reduce mark up to 0% and start providing Home Loan at Base Rate therefore you can pay conversion fees and link home loan to Base Rate. In short, reduce mark up from 0.05% to 0%. The ROI cannot go below Base Rate of bank therefore you are at lowest risk point right now. You may go ahead with SBH.
Thanks again for the valuable feedback, Nitin. I have now decided to go ahead with SBH.
All the best :)
Hi! Nitin!!
nice article and this boosts my confidence in PNBHFL but I have few queries,
Q.1 If one opts for PNBHFL purely fixed interest rates for loan for a tenure of 10 years (we wish to take only for 10 years). Is there a fine print in the documents that say that truly fixed interest rates can be revised by bank as per their wish or every 3 years. Or is it written in printed contract that interest rates are really fixed for period 10 years and both parties will never be able change whatever may be market conditions. we are inetersted in this scheme as we will know exactly our EMI for next 10 years but not sure if this is real.
Q.2 Can you suggest us how EMI are calculated differently for fixed interest rates Vs floating interest rates
Q.3 Consider if we make part payment of around .5-1% of loan amount randomly as and when available; how will have effect on EMI calculation in truly fixed interest rates for the period of 10 years.
Q.4 Do PNBHFL have a pre payement penalty of 3% of total home taken in truly fixed interest home loans.
This are my genuine queries as I am first time taking loan and have read a lot on net but when you talk to people in field there are lots of rumors and confusions.
Thanks a lot in advance,
Phoenix
1. It is fixed and there is no reset clause
2. EMI is dependent on ROI and is calculated using standard formula
3. PNBHFL will give option either to reduce EMI or reduce Home Loan Tenure.
4. If you are paying from own source then there is no prepayment penalty on part or full payment else there is prepayment penalty of 2% of principal paid + applicable taxes.
Hi Sir,
I am planing to buy a home of 21 lacs. I need 16 lacs loan.
Which bank I should go for this PNB or BOB. PNB is offering 10.75% – 11.25% for 10 years.
Because I am confuse b/w fixed rate and floating rate. which would be better for me fixed rate or floating rate.
Please suggest
Thanks and Regards,
Arpit
Depending on your financial liability, financial goals and risk assessment you may decide.
Hi Sir…..I have gone through many of your article and read most of the quires from users….Is this right that bank raise interest rate after some time……means i see some user has asked that interset rate is increase to 11.5……..or so…..currently PNBHFL offered me 10.25 and i had a conversion with them for this interest rate….the told if the RBI increase the rate then only they will do……is this right?…………kindly suggest……………
Not necessary that if RBI change any key ratio then only banks alter ROI. Rate of interest depend on cost of funds and liquidity with the banks for lending. Because of this reason, all banks are offering loans at different rate of interest. If it purely linked to RBI policy then all banks should offer loans at same rate which is not the case. Banks offering high ROI on FD will charge high ROI for Home Loan as their cost of fund is high. Banks with good CASA ratio will charge low interest as CASA funds are cheapest. Rate of Interest depends on multiple factors and permutation & combinations.
Hello Nitin,
I have a query.
We are in a process of sanctioning home loan from PNBHFL .We have paid all the processing fee. The guy who is acting as a contact point for us didn’t told us at the time of publicising the loan scheme that Home loan protection plan is mandatory. In fact he said you can opt to take if you want but now when the processing is in the mid way he is saying it is mandatory and only that’s why your rate of interest is 10.15 % other wise it would be 10.5 %
Can you please let me know whether it is mandatory or not and how can we escape this situation.
As per IRDA guidelines, Home Loan Protection Plan is not mandatory. PNBHFL executive is misleading you that ROI is 10.5% if you don’t opt for Home Loan Protection Plan.
You may inform him that if he mis-sell insurance to you then you will complaint to IRDA regarding same and also you will return policy during free look up period of 30 days from date of issue of insurance policy.
Hello Nitin Sir,
I am in the process of transferring my home loan from LICHFL. I tried for SBI and the process got shelved because I could not get some original documents from the builder. I am in talks with PNB Housing and HDFC. Both the banks have already approved the project so documentation will not be a problem. Since I have already burnt my fingers with LIC, I am planning to go for 10 years fixed rate which HDFC and PNB both are offering.
PNB – 10 years – 10.15%
HDFC – 10 years – 10.05%
As the difference is marginal, which one would you suggest considering the service and terms & conditions etc.
Thank you in advance.
HDFC but you need to check which documents are missing and how imp these documents are.
I’ve just applied for a home loan in HDFC(January 2016). Which scheme should I choose HDFC TruFixed Loan for 10 years or Floating?
Floating