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Which is the Cheapest Bank for Home Loan in Market

by Manish Chauhan · 31 comments

Some days back I wrote Review of BankBazaar.com . One of the readers NKanani tried there Home Loan section to find out best Bank for him and he didnt get satisfactory results and commented to me

“I checked out the home loan section – it gives me three options – axis bank, ing vysya and deutsche bank… all having interest rates higher than sbi… The calculations are all good, but it would have been better if we could add banks of our interest.”

I contacted BankBazaar.com personally and got a reply from Chief Product Officer . Read Below

Reply from Chief Product Officer , BankBazaar

“Your reader is right in saying that we do not have SBI on our list. Unlike lead generators who list generic rack-rates of all banks, the way BankBazaar.com works is that we integrate deeply with our partners to enable instant, real time, custom rate quotes from them. This means BankBazaar users will be able to see offers only from our partners. Right now SBI is not on our partner list. We are however working very hard to onboard them to our marketplace.
Right now Axis is the 2nd largest private sector bank and HDFC Ltd, which is the largest private sector bank for home loans, with over 50% market share will soon be joining our marketplace. We are constantly working on improving our offering and adding more banks to our suite.
Coming to the point on SBI offering the lowest rate, this however is not entirely true. This is a commonly misunderstood rate. Home loan buyers must be completely aware of the long term implications of this teaser rate before taking the decision. Axis Bank’s home loans are actually cheaper than SBI for loans below Rs. 30 lakhs, and for loans above Rs. 50 lakhs, when you actually calculate the total interest that will be paid out over the course of the loan. To reference this, the calculations of a number of scenarios comparing Axis and SBI’s offers are provided below. You will notice that SBI’s 8% rate is only valid for the first one year. In the 2nd year, the rate is 8.50% and from the 3rd year on, the rate is 9%. At this point, Axis Bank (8.75% for entire term) is a cheaper option to go with for loans <30l>50L. Note: All of the above calculations assume that floating index rates will remain unchanged, as it is not possible to predict how they will change. Even if floating rates were to change, the calculations of relative cost above would continue to have value as the floating rates of Axis and SBI would more or less move in concert.

See the Comparision between Axis Bank and SBI for different loan amount HERE

Read how to find the best Fixed deposit for youself

Conclusion

All the results from websites which gives you best result or compare two company work on this Model . So you must do your own finding in detail before taking the result as final Truth .


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{ 28 comments… read them below or add one }

1 Anonymous September 14, 2009 at 12:15 am

One need to ask about PLR of Bank and How much discount he is getting on the PLR.
He should ask whether this discount will remain same for the tenure.
ie PLR 14% and Home loan 9% meaning you are getting 5% discount on PLR, Even if PLR go to 16% your rate shall not increase more than 11% …

Axis bank has higher PLR than SBI .. one can always find that (i havent search though)
Abhishek

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2 Anonymous September 14, 2009 at 5:13 am

In addition of above
SBI SBAR (PLR) 11.75
AXIS BANK (PLR) 14.75 (as of 14th May 2009) (latest update on google).

Be wise Go with Nationalize bank always

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3 NKanani September 14, 2009 at 7:30 am

Thanks a ton, Manish, BankBazaar.com, and Anonymous for the valuable information and insight you have provided. It looks I will need to check quite a few parameters [like PLR] when analyzing for home loan!!!

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4 Manish Chauhan September 14, 2009 at 8:29 am
5 Manish Chauhan September 15, 2009 at 5:24 am

@Abhishek ..

I contacted the officer at BankBazaar and here is the answer

SBI's prime lending rate which is also their benchmark rate for home loans, referred to as SBAR is currently 11.75%. Axis's Bank's benchmark rate for home loans is called MRR and is currently 12.25%. Let us quickly look at the interest rates for both banks. You can google these rates to validate them.

SBI's rate after 3rd year for loans upto 50 L is = SBAR – 2.75% => 11.75% – 2.75% = 9.00%
SBI's rate after 3rd year for loans > 50 L is = SBAR – 1.75% => 11.75% – 1.75% = 10.00%

Axis's rate for loans upto 30 L is = MRR – 3.50% => 12.25% – 3.50% = 8.75%
Axis's rate for loans > 30 L is = MRR – 3.00% => 12.25% – 3.00% = 9.35%

It is clear that for a 20 year loan, Axis is cheaper for loans between 5L and 30L and also for loans above 50L.

- As per CPO of BankBazaar.com

Also look at : http://tinyurl.com/me6lrl

Manish

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6 Maurya September 15, 2009 at 12:36 pm

In your calculations, you have assumed long term rate of SBI as more than Axis bank's. What is the reason for this?

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7 Manish Chauhan September 15, 2009 at 1:45 pm

@Maurya

The calculations are not mine , its provided by BankBazaar.com .. I guess that the authentic data and source of truth . :)

Do you think its something else ?

Manish

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8 Maurya September 15, 2009 at 2:22 pm

They are not trustworthy, especially if they are from BankBazaar :). Axis is their partner, SBI is not (yet). Obviously they want to make Axis look good.

Even without full calculations, intuitively we can figure that more impact is of the long term rate, than the rate for next 1-3 years. Now, no one knows the real long term rate. Taking advantage of this ignorance of everybody, this guy has cleverly assumed a higher long term interest rate for SBI. He has given no reason why long term interest rate of SBI will be higher than Axis.

BankBazaar gave another misleading anti SBI article in rediff: http://www.rediff.com/money/2009/feb/13perfin-sbi-8-percent-home-loan-rate-lure.htm. Since then, I am suspicious of BankBazaar.

My opinion: With SBI, we have at least the ability to know the next 3 years expenses. We can plan accordingly. With Axis, we know nothing even of the next year.

In both cases, we are have no idea of anything after 3 years, so we should assume nothing for this period (3-20 years).

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9 Abhilash December 14, 2009 at 1:03 pm

Hi..this is the current offer as on 14th Dec and my be valid till 31st Dec 09

AXIS BANK
8% interest rate fixed for one year

Processing fees-0.5% on loan amount

Stamp duty – 0.25 % on loan amount

Axis property insurance – 7000/- one time for a 30L loan (Mandatory)

No prepayment charges, any number of times can be paid. Min of 2x of loan EMI as prepayment will only be accepted.

No Balance transfer (to other bank) charges.(after 6 months)

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10 Abhilash December 14, 2009 at 1:04 pm

Home Loan interest rate is PLR(12.25) – (3.5) = 8.75%
.-= Abhilash´s last blog ..Will the market grow or shrink? =-.

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11 manish December 14, 2009 at 5:22 pm

Abhilash

Are you sure the 7,000 property insurance is one time , what is that property insurance , explain ?

Manish

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12 Manish Chauhan September 16, 2009 at 3:41 am

@Maurya

Here is the reply from BankBazaar for your comments ..

The article I shared with you is proof of the numbers considered and this also was one of our sources for validation. I believe Economic Times is a reliable and neutral source of information. Please share this with the thread. We are not making up anything here :)

http://economictimes.indiatimes.com/Personal-Finance/SBI-ups-home-loan-market-stakes/articleshow/4869677.cms

"After three years, the customer has a choice of a floating rate 2.75% (compared with 2% earlier) below the bank's prime lending rate (PLR) or a fixed rate at 1.25% (against 1%) below the PLR. Loans above Rs 50 lakh will continue to attract 8% for the first year, but will pay a lower rate of 9% (against 9.5%) for the second and third year. After three years, the customer can choose between a floating rate at 1.75% (1%) below the PLR and a fixed rate at 0.75% (0.5%) below PLR. " [Source: ET.com]

What do I think .. Everyone here is dependent on other for source of data .. We should beleive ET for what they have said .

Do you personally have any other numbers from SBI ? Why do you think that the data is not correct .. why dont you beelive ?

Manish

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13 Anonymous September 16, 2009 at 5:53 am

@to get answer
Go to axis bank, pretending to home loan customer.

You will get the deal and share the data with us

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14 Maurya September 16, 2009 at 11:26 am

Thanks Manish, you are awesome.

First, most important, and specific question: In this ET article (SBI ups home loan market stakes) , where is it written that SBI rates from 2012-2029 will be higher than Axis Bank rates in the same period? From the quoted snippet it seems like even for 2012 and beyond, SBI has decreased its own interest rate (from PLR-2 earlier, to PLR-2.75 now).

Less important comment starts –

Am I supposed to believe this PLR hogwash? The same "reliable and neutral" source ET says that PLR doesn't mean anything.

http://economictimes.indiatimes.com/News/News-By-Industry/Banking/-Finance-/Banking/PNB-pulls-the-plug-on-sub-PLR-loans-to-increase-transparency/articleshow/4493532.cms

http://economictimes.indiatimes.com/News/Economy/Finance/RBI-aims-for-transparency-may-not-allow-sub-PLR-loans/articleshow/4633689.cms

It is supposed to be "Prime" lending rate: the rate for Bill Gates and Ambanis. Not that they need loans, but that is what "Prime" means. Our banks have given 75% of loans below PLR. I didn't know India is full of billionaires.

Do you seriously believe anyone can predict the PLR or interest rate of any bank 3 years down the line? Should we pay more interest rate now (when there is more principal outstanding) for that mirage of meaningless PLR? This selfsame PLR, which is 14.75% for Axis and 11.75% for SBI at present, according to second comment in this blog post? I have myself stopped researching PLRs because of their meaninglessness.

I fail to understand how BankBazaar has answered any of my questions. Any enlightenment will be highly appreciated.

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15 Manish Chauhan September 17, 2009 at 3:25 am

@Maurya

Due to my limited knowledge in the field of Real Estate , I would prefer to shut up and wait for comments from Bankbazaar directly . Wait for it :)

My views :

I agree the no one can predict PLR in long term for a company , becuase of that fact , Its not possible to choose a single company which will perform best over long term ..

This is a situation which i pointed out some time back , that because of all this confusion We delay our decisions and take is very hard on ourself .. the best thing I would do is to take home loan from any one of them (whichever is better now and looks better for long term statustically and historically) and then take care of changes later … thats my personal take , because I dont mind paying 50,000 or 1,00,000 extra in long run as far as I dont have to think too much .. once again , thats very much personal take of mine .. i am weird :)

Manish

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16 Maurya September 17, 2009 at 9:10 am

@Manish – Fully agreed, most people do not want to think too much. I remember our earlier discussion. It is just that I don't want BankBazaar to take advantage of this to fool people.

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17 Manish Chauhan September 17, 2009 at 9:23 am

@Maurya

I think BankBazaar has mentioned that the data sources are entirely from ET and other sources , Even from Bank itself .

Anyways .. my idea is to keep it simple .. To end the discussion with sweet note .. I personally think its rubbish to buy homes these days .. better to rent only and invest the surplus in Equity ..

- Highly Liquid
- Whenever you want to buy home, you can buy , because your money in Equity will rise with better pace then Real estate , its been historical .. In the last some years .. real estate prices are appreciating in crazy manner .. its not going to sustain for decades ..

Thats my take :)

Manish

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18 Maurya September 19, 2009 at 11:58 pm

So, BankBazaar copped out? I expected them to give a bit more fight.

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19 Manish Chauhan September 20, 2009 at 12:07 am

@Maurya

I guess they will reply once they see the comments .. They might have limited resources . Lets wait for some more days ..

Manish

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20 Maurya September 24, 2009 at 9:03 am

Still giving more time to BankBazaar? You are quite naive for a financial planner. Read this for the value of distrust: http://new.valueresearchonline.com/story/h2_storyView.asp?str=100357

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21 Govind January 7, 2010 at 11:50 am

I like 1 feature of Axis bank home loan where it is not charging anything for balance transfer to other bank. Which means we will always have a free of charge option to transfer our loan to someother bank. On the other hand it will also force Axis bank to keep their homeloan rates competitive in order to retain their customers. I’m bit inclined towards Axis bank because of this feature and planning to buy homeloan from them. Please enliten me in case I overlooked something.
As far as I know, other bank are charging 2% or higher on outstanding amount for balance transfer.

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22 Manish Chauhan January 8, 2010 at 2:39 am

Yup

We have already discussed this in the thread http://www.jagoinvestor.com/2009/08/review-of-bankbazaarcom-excellent-user.html (see comments) . Axis bank is a good one ..

manish

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23 Pradeep January 8, 2010 at 1:49 pm

I am also going for the Home Loan with Axis Bank.
I am going for Home Loan of 25L.
Please let me know if the Axis Bank is the right choice with out any Hidden Cost.

Pradeep

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24 manish January 8, 2010 at 2:18 pm

Pradeep . No one can directly day its good or bad . Each products can be good and same time bad for two different people .

There are factors which you need to consider like Tenure , loan amount , Location , future plans of prepaying etc .

Manish

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25 Pradeep January 8, 2010 at 3:03 pm

Thanks for quick Reply,
Actualy I am trying for SBI but the y need a guarenter as the property is under construction.
Here are the details:
Location : Gurgaon
Builder : Unitech
Loan amount: 28L
Tenure : 15 Yrs.
Would like to Prepay at 50% / Or sell it in next 6 years.

Let me know your comments.
Thanks,
Pradeep

Reply

26 Pradeep January 8, 2010 at 3:04 pm

Thanks for quick Reply,
Actualy I am trying for SBI but they need a guarenter as the property is under construction. My second choice is Axis. Here are the details:
Location : Gurgaon
Builder : Unitech
Loan amount: 28L
Tenure : 15 Yrs.
Would like to Prepay at 50% / Or sell it in next 6 years.

Let me know your comments.
Thanks,
Pradeep

Reply

27 manish January 8, 2010 at 5:38 pm

Pradeep

The decision is to be taken by you . Its tough for me to suggest :) . You need to do more investigation and finally comeup with the decision .

Manish

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28 Pratik , Baroda India June 4, 2010 at 6:25 pm

Kindly check Bank of baroda and Bank of India having lowest interest list.
BOB provides special intereest rates to L&T group and also to top 5o companies pl. check list with them

Regards

Pratik

Reply

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