Published on: Feb 3, 2016 @ 04:22
State Bank Of India (SBI) on Monday launched a new home loan scheme, ‘FlexiPay Home Loan’. With new home loan scheme, SBI offers higher loan amount and up to five years of interest moratorium.
Under this new home loan scheme, the borrower needs to pay only the interest component in the early years, thereby it increases the loan eligibility for the customer by up to 20 per cent. It offers a repayment option of lower EMIs in the initial years, followed by higher EMIs.
The new scheme offer will enable young working professionals to get a higher loan amount compared to their loan eligibility under normal schemes.
“To lower the impact of such additional loan amount on monthly repayments in the form of EMIs, the customers availing home loan under the scheme will also be offered the option of paying only interest during the moratorium (pre-EMI) period of 3 to 5 years, and thereafter, pay moderate EMIs,” SBI said in a statement.
The new home loan is aimed at salaried individuals. The upper age limit for this scheme is 45 years. Given the target group, the bank offers loans with a repayment tenure of 25 to 30 years under the scheme. However, customers can make prepayments towards their home loan without any prepayment penalty.
Last year, SBI chairman Arundhati Bhattacharya had suggested to RBI governor Raghuram Rajan that banks be allowed to reintroduce ‘teaser rate’ home loans. But, Raghuram Rajan had then turned down the proposal.
SBI had launched a loan scheme earlier which came to be called ‘teaser loan’. Teaser loans are those where the interest burden is lower in the initial years but rises subsequently. It offered lower interest rates in the beginning but higher EMIs later on.
Rivals initially criticized SBI, but soon they, too, followed it up with similar schemes. Critics had warned this would create a credit crisis and if the overall economy falters borrowers would be overburdened. As criticism mounted, the then RBI Governor D Subbarao was forced to stop the scheme which formally came to an end by April 2011.
SBI, however refused to term ‘FlexiPay Home Loan’ as the ‘teaser loan’, saying it is not offering any discount in interest rates or offering more loan to value.
“In FlexiPay, there is no step-up interest rate. The loan is similar to a regular home loan, except for the moratorium on principal repayment,” said Jayanthi Lakshmi, chief general manager (real estate and housing development).
“The EMIs will be stepped up during the subsequent years”, the bank said. “We obtain an authorization from the borrower to raise the EMI if there is an increase in interest rates. This ensures that their principal liability does not increase,” said Jayanthi Lakshmi.
SBI new scheme of “FlexiPay Home Loan”, aims to enhance its home finance portfolio by attracting NewGen borrowers. It would benefit those individuals whose salary does not entitle them to the size of loan they are seeking.
Ajay Verma, founder, and writer of The Housing World, a real estate and mortgage news website. He has over fifteen years of rich experience in the above-mentioned industries.