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Tuesday, February 24, 2009

HDFC to charge borrowers for switching bank

Switching Home Loan from HDFC to SBI:

Mortgage giant HDFC has made it expensive for home borrowers choosing to switch over to another bank. The institution has started charging borrowers up to 3% of the outstanding loan if they decide to prepay their loans by borrowing from another lender.

Direct selling agents in the home loan market believe the move is aimed at discouraging HDFC’s existing borrowers from switching over to State Bank of India (SBI), which has stirred the market with a special scheme that offers home loans at 8% for the first year.

Though the SBI loan is loaded with front-end charges like mortgage registration, the 8% interest, which is significantly lower than other offers, has sparked off a slew of enquiries among new and existing borrowers. Indeed, the special scheme has triggered a battle for market share between HDFC and SBI. Recently, HDFC chairman Deepak Parekh had described the SBI scheme as a “gimmick” in a media interview. Watch Video

Always between 0% and 3%?

HDFC officials, however, played down the development. “Our prepayment charges have always ranged between 0% and 3%, depending on how long the borrower has been with us, where the funding is coming from and what is the interest rate on the loan being prepaid,” said HDFC deputy managing director Renu Karnad. She pointed out that this was similar to the condition that banks lending to HDFC insist on. “In some cases the lenders ask for the difference between the contracted loan rate and market rate,” she said.

Hidden Charges?

Since last year, HDFC is charging around 2% if a borrower prepays the loan within three years of disbursement. HDFC has, however, kept part-prepayment up to 25% of a loan amount exempt from such charges. Although the HDFC loan document does not mention the pre-payment charges, the institution, like most other lenders, has been charging around 2% for loans that are prepaid by obtaining refinance from other lenders.


An ICICI Bank spokesperson said the bank charges 2% for prepayment irrespective of whether it is refinanced or foreclosed by the borrower. Together with service tax, the prepayment cost goes up to 2.25%.

Discourage the customers:

HDFC officials said all attempts are made to ensure that customers stay back. If the institution comes out with a scheme offering lower rates only for new customers, all floating rate borrowers who are paying higher rates are allowed to switch to the better rates by paying a 0.5% charge.

"SBI, interest rate from 2nd year?"

However, the new rate offered by SBI is not offered to the bank’s existing borrowers. Under the special scheme, the interest rate applicable from the second year are in line with market rates. If the borrower is eligible for the special scheme formulated by the Indian Banks’ Association, the rates for that scheme will apply.
-The Economic Times

What is your take on switching home loan from HDFC to SBI?

I am sure, you know home loan jargon well.
You are not in two minds about prepaying your home loan.
Keeping in mind that though slightly lower, HDFC is expecting 20 % growth in 2009-'10, can you, please, share your views in the comments about switching home loan from HDFC to SBI.?
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  1. These private sector institutions are cheaters. Earlier ICICI was famous for this, but it seems that now HDFC has joined the league.

    The same institutions were making lot of customers in boom time by taking advantage of their speedy approvals and were pointing out towards the long time required for the approval by state owned banks.

    People have now started understanding the benefits of public sector banks (Basically low interest rates) and rushing towards them so HDFC is now crying foul. SBI is choosy about the transfer of loans and they are giving preference for transfer of loan amounts higher than 15 lakhs.

    This situation is not going to prevail for long time and interest rates are bound to drop. It will be interesting to see the difference in the home loan rates after drop in PLR. If that remains significant, private banks are going to lose more and more customers.

    So as of now most of the people will wait and watch till the time PLR comes down and then decide their move.

    Switching loan is not a familiar concept in India and it may take some time for people to digest this but eventually the one who gives best benefit to customers is going to win in this race.

    Ravi, your views please.

  2. Actually I just transferred my loan to HDFC from ICICI by paying 2.25% to ICICI and about 10,000/- to HDFC for processing fees. My rate chagned from 12.5 (which had reached 13.5 recently) to 9.75. So I feel in long term this is good for me. Also ICICI was not ready reduce it any lower than 11.25 that too only if I bought some sort of insurance at least worth 25k with ICICI Prudential, that'd screw me over for next 10-15 years at the rate of atleast 25k per year.
    I wanted to transfer the loan to SBI but they dont takeover loans for properties under construction and I'm not too sure when will I get my flat. At the same time their rate was at 10% but would still have preferred SBI over HDFC.
    So had to pick my poison.
    Lesser of the evils at the moment was HDFC.
    So basically in this transaction I'm getting screwed because builder is not handing over the flat in time, then the first lender will not reduce any charges and now the new lender will charge me an arm and leg to foreclose the loan if ever I reach that point.
    An basically that's how I fee in general about this buying home thing. Not too pleasant when you look back or think more about it.

  3. # ref: "Switching loan is not a familiar concept in India"

    Yes, i completely agree with you. Builder and Bank are two sides of the coin. Both should be given equal "respect" and "treatment"!