Tuesday, March 29, 2011

HDFC clause 2.13 for spread change

Below is the clause mentioned in HDFC's home loan agreement that is paving the way for more and more fees as spread conversion charges. 

Clause 2.13: The spread applicable to the borrower for the purpose of computation of AIR is as indicated in the Schedule . In the event of HDFC offering revised spread in future, the borrower shall have the option to opt for the revised spread in respect of the loan, provided if such option is made available by HDFC, with prospective effect upon payment of such fee and execution of documents as HDFC may prescribe in that behalf. It shall be the borrower's responsibility to keep himself informed about the revision in spread from time to time. 

Now there are many inconsistencies in the above clause and its implementation by HDFC that we'll discuss one by one. 

1. It is the responsibility of the customer to know whether any new "scheme" is available to reduce their interest rates. 
Are the customers supposed to call them everyday to know the so called "scheme"? Why can't they put it on their website? The reason is obvious: Putting such schemes on website will show their true colors to their prospective customers and they will certainly think twice before taking a loan from them. 

2. The quantum of processing fees: The fees for spread change is absolutely arbitrary and one sided and it is decided on the whim of HDFC. 
It ranges from 0.5% to 1.5% of the outstanding principal. Note that 2% is the mark where customer might "leave" them altogether by shifting to another lender. 

3. The quantum of new spread: There is no fixed formula for the new spread you can avail of with respect to the new customer. In this case too the customers are at the mercy of HDFC. 

a) In April 2009, New customers were being offered a spread of 4.5, while old customers were being offered 4 (at the cost of 0.5% of the outstanding principal)

b) In January 2010, applicable spread for new customers was 5, while HDFC came with a new formula for old customers, with a new formula for fee. 
It was like below: 
Spread Conversion fee = (ER - NR)/2, with min limit of 0.5 and max limit 1.5
ER = existing interest rate
NR = new interest rate

c)In February 2011, they said that old customers can further pay 0.5% of the outstanding principal and reduce their interest rate to 9.25. When I went to enquire further, i got to know that there is further differentiation between customers who had their outstanding principal >20L and <20L. Note that in cases a) and b) there was no such differenciation.  

The readers must have observed that the customers are trapped with HDFC and to keep the interest rate comparable with that of the new customers, the existing customers MUST pay approx 0.5% of the home loan, which is a huge amount of you consider once every year. 

In my case, if had not at all paid any "extra" as a spread conversion fee, my interest would have been a whopping 12.25%, as against 10.25% at the time of the sanction of letter while taking the home loan in July 2008 (It's less than 3 years!!!)

You should really give some serious thoughts and then choose your lender wisely. 

1 comment:

  1. I have already paid 1.5% fee in last 2 years , I wish i was little brave paid 2% and get out of HDFC. They just cheat customers. Even after paying 1.5% ,i am now having interest rate as 10.5% ,had i switched to SBI or LIC houseing fin, my Interest rate would have been only 9%.

    Looks like I am stuck for my life to the cheater bank HDFC