State Bank of India (SBI) will put to an end to its puzzled home loan schemes by the end of April 2011. The interest rates offered on its home loans will now be recalled by floating interest rate schemes, which are comparable with those offered by other commercial banks and housing finance companies. All loans from May 1 will  draw an interest rate of 9.5-10.25 per cent, depending on the loan amount. Loans up to Rs 30 lakh will be available at 9.5 per cent (one percentage point above their base rate). Loans in the Rs 30-75 lakh range will be charged 9.75 per cent (125 basis points above the base rate). And, those above Rs 75 lakh will be charged 10.25 per cent (175 basis points above the base rate). Though, these rates would move in line with the changes in the bank’s base rate that is reviewed every quarter.

Earlier, the RBI had asked banks to stop giving teaser loan rates, since it believed such loans would blow the asset quality of the bank’s home loan portfolio. Puzzled loans offer advances at a comparatively lower rate of interest for the first few years, after which rates were re-set at higher rates. SBI is the last one to discontinue such special loans. Under its SBI Easy Home Loan and SBI Advantage Home Loan products, one could get loans for 8-8.75 per cent in the first three years. After the third year, the rates would get reset at the current floating rate structure. At 8.75 per cent, a 20-year-old loan on Rs 30 lakh would come to Rs 884 a lakh. At 9.5 per cent, you would now be paying Rs 932 a lakh.

Those who already have SBI’s puzzled home loans and are still in the initial three years, the old rates remain applicable. The new rates will only apply to new applicants. Among the housing finance companies, LIC Housing Finance is still offering a fixed interest rate of 9.9-10 per cent for the first five years and, thenafter, the existing rates will apply. A quick calculation on apnaloan.com showed that the average rate for a 20-year period still works out in SBI’s favor. The average rate for SBI was 9.5 per cent, while that for LIC Housing was 10.5 per cent for the same period.

SBI has also said there would be no penalty on foreclosure on home loans. The bank used to charge customers a 02 per cent penalty on fore – payment of the home loan. It will also introduce a graded processing fee, which will increase  according to the loan amount.