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Charts & Analysis

SBI's "Teaser" rates


SBI offers home loans for a year at 8%:

In a move that may trigger a rate war, State Bank of India [Get Quote] on Sunday said it would charge 8 per cent interest on new loans for home buyers and small and medium enterprises for a year. The loans disbursed till the end of April will be eligible for this rate.

What happens after a year? The loan will reset, linked to whatever SBI decides their SBAR (benchmark lending rate) will be. Currently, the scheme offers around 2%-2.25% below SBAR for 5 to 25 year loans.

See the SBI loan offer here. The deal is: 8% p.a. frozen for a year, and then it will be reset to “contracted rate at the time of sanction of loan”. Does that mean you get to work with an SBAR of 12.25%, even if the rates go down? It’s unclear – and yes, banks have taken advantage of non-clarity so one must be careful.

Still, this is a “teaser loan“. Obviously checks will be done on income to work with an EMI based on 8%, not 10.5% – the borderline folks will simply be unable to pay next year.

Teasers will trigger more teasers, if they are successful. But home prices are only going south, so it’s likely there’s not much demand – either for houses, or for teaser home loans. Let’s see.


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