A home loan is a type of loan wherein the borrower finances a real estate property by putting the same as collateral. A home buyer can take the home loan to either buy a real estate property or build it over an owned existing real estate property. It is not uncommon in India to have home purchases funded by a home loan.  Only a very few possess enough savings to buy their house outright. There are many countries in which there is a substantial demand for home ownership and home loans market has developed extensively in such countries.

As with all other types of loans, home loans also have a periodic interest and the principal amount amortizes over the life of the loan. It is done in a way that the monthly installment that one has to pay comes out to be same for each of the intervals.

The typical duration for a home loan is usually 30 years worldwide. Historically, in India, it was uncommon for a home loan to have this long duration because of the restrictions imposed by the banks. However, in recent times, this restriction has been lifted and maximum tenor of the home loan has been increased from 20 years to 30 years. A higher tenor decreases the periodic installments and therefore, prevents defaults from occurring. However, banks in India may bring the tenor back to 20 years once the interest rates stabilize to the normal levels going forward.
The housing sector lays an essential role in economic development of the country.

The past decade has witnessed substantial growth in the volume of active mortgage loans. This is largely because of the steady increase in demand for housing in various parts of the country. The key determinants of the housing demand are factors such as price of housing, consumer preferences, cost and availability/eligibility for credit, and price of substitutes. As for the impact of substitutes, it is widely observed that the housing demand increases with the cost of rented accommodations soars. The rapid migration of population has sky-rocketed the housing rental costs significantly. In addition, the recent increase in urbanization has also resulted in acute shortage of housing units. All this in conjunction with aggressive lending by banks and increase in aggregate income levels has resulted in steep rise in home loans.

Housing Finance Market in India

The major players in the housing finance industry are the Housing Finance Companies, Co-operative Banks and Scheduled Commercial Banks. The competition between the Housing finance companies and commercial banks has increased tremendously over the years owing to fall in interest rates across all the maturities by the latter. The competition within the housing finance sector is making the major players offer attractive features such as lower or negligible processing fee, no penalty on pre-payment, low interest rates and adjustable rate plans. Furthermore, commercial banks have also started offering free additional services such as life insurance, life time credit card, and reduced interest rates on personal loans for furnishing the house. The major competitors in the Indian housing finance industry are State Bank of India, HDFC (Housing Development Finance Corporation) and LIC Housing Finance.

State Bank of India offers home loans to people all across the country. In terms of revenue and market capitalization, it is the biggest banking and financial services company in India. As of May, 2012, the aggregate worth of its assets was USD $360 billion i.e. Rs. 20 lakh crores. It has a network of more than 14,000 branches across the country, with more than 170 foreign offices in 37 countries worldwide. In recent surveys, it was conferred the “Most Preferred Bank Award” and “The Most Preferred Home Loan Provider”. In addition to home loans, it also offers attractive packages on car loans, education loans, scholar loans, personal loans, loans against property and many more. Similar to home loan segment, it is equally competitive with other competing banks in all other segments as well.

Salient Features of SBI Home Loans

SBI Home Loans bring to you the trust and transparency no other bank can match. The reputation of SBI Home Loans can be gauged from the fact that more and more people are switched their home loan lender to SBI in recent times. The salient features of the SBI Home Loans are-

  1. Low interest rates – SBI offers excellent competitive rates for their home loans segment. Every time there is a rate cut by the Reserve Bank of India, they are the first to lower their rates and other financial institutions follow suit.
  2. Low processing charges – The processing charge on SBI home loans is set to a very low level as compared to other banks and housing finance companies. In fact, in most cases, there are no processing charges depending on the notional of the home loan.
  3. No hidden costs or administrative charges – Many financial institutions charge hidden fees for their home loans in the form of Sanction fees, legal and technical evaluation fees. SBI does not levy any such fees on its home loan borrowers.
  4. Zero prepayment penalties – Most banks charge a penalty fee on pre-payment. This is so because of the losses occurring due to pre-payment in a low interest-rate environment. When interest rates are low, borrowers can borrow funds at a low rate elsewhere and use that to prepay their existing home loans. This indeed results in losses to the financial institution which lent them the money initially. Contrary to other banks, SBI does not impose any prepayment penalty. This waiver of the prepayment penalty is an attractive proposition for the borrowers enabling them to switch lenders to take advantage of the lower rates.
  5.  Availability – A network of 13,700 branches make sure that you can get you home loan availed from a branch nearest to your current or proposed residence.

SBI Home Loan Products

To suit varying requirements from a diverse population, SBI offers different variants of their home loans products. The most famous ones are discussed below-

  1. SBI Maxgain – It offers optimal yield on your savings with minimal interest loan burden. It is granted as an Overdraft facility and you can operate your home loan similar to your savings account. The minimum loan amount for this product is Rs. 5 lakh.
  2. SBI Realty – It is to facilitate people with purchase of a plot of land for the purpose of construction. The maximum loan amount for this product is Rs. 15 crores. The tenor of the loan is set to 15 years, but with a caveat that the construction should begin within 2 years from the time the Housing Loan is availed.
  3. NRI Home loans – As the name states, this product is for NRI’s (Non Resident Indians) and PIO’s (Persons of Indian Origin holding a Foreign Passport). The minimum loan amount for this product is Rs. 3 lakh.
  4. SBI Tribal Plus – This is a special product designed to assist the tribal areas in India with financial services. The maximum loan amount for this product is Rs. 10 lakh and the tenor is set to maximum of 15 years.
  5. Gram Niwas – This product targets the poorest of the poor in the rural areas of India. The rural areas for this variant are defined on the basis of population which should not exceed 50,000 as per 2001 census. It enables farmers and other poor people to fund the purchase and construction of their houses. The Gram Niwas loan can also be used for the maintenance of their dwelling unit.
  6. Sahyog Niwas – The purpose of this scheme is to finance the self help groups with an excellent payment record in the past so that they can further lend it to members for housing in rural areas. The maximum loan amount is set to Rs. 50,000 per member for construction and Rs. 25,000 per member for purchase of plot or repair of house.
  7. SBI Green Home Loans – The intent of this product is to promote the fight against unfavorable climate changes.  It offers a concession of 0.25% on the interest rates and zero processing fees on home loans marked for Green Projects.
  8. SBI Surakshit Home Loan – This is a home loan that comes with an added benefit of a life cover. To approximate the aggregate cost, you can add the Life insurance premium to the normal periodic fees.
  9. SBI Yuva Home Loan – This product is for salaried employees between the ages of 21 years to 45 years. The tenor of the loan is set of maximum of 30 years. For the first 3 years (36 months), only the monthly interest has to be rapid and the regular EMI’s will start from the 37th month.
  10. SBI Home Loan PAL – It comes with a pre-approved limit i.e. the loan amount that you are eligible for will be decided before the finalization of property deal.

The current fees and the interest rates for the above products can be found on the SBI website at https://www.sbi.co.in.