HDFC's RPLR: Ambiguity prevails!

What a joke!
HDFC has already increased their RPLR by 0.5 and it now stands tall at 16.5 as of 1st Aug 2011.


But HDFC's vice chairman still (as per the news dated 2nd Aug 2011) says that they are yet to decide about passing the rate hike to customers.
Link: http://www.moneycontrol.com/news/business/will-decidepassingjuly-rate-hike-this-week-hdfc_571789.html


Here is a screenshot (not my account) of an HDFC customer as a proof. Look at the Next Reset Date and the Expected ROI. If you look at all the dates in the screenshot, you'll come to know that the ROI has has ALWAYS (reset cycle is of 3 months) increased since 1st June 2010.

01-JUN-2010 9.00 01-SEP-2010 9.50 01-DEC-2010 10.25 01-MAR-2011 10.75 01-JUN-2011 11.25 Interest Rate / EMI is subject to any change that may happen in future

Next Reset Date Expected ROI (%) on Next Reset 01-SEP-2011 11.75

Those who had the reset date as 01-AUG-2011 have already been affected with the increase in RPLR (correct me if i am wrong). 

I just had a word (I have also recorded the conversation) with HDFC branch (Pune main) and they said that even though it's been updated into customers' online accounts, HDFC has not yet decided on the discount (did they mean spread? god knows) and the exact change would be clear only after wednesday (i.e. 3rd Aug)

What could be the reason for HDFC to discretely increase the RPLR? 

One possibility: They have not yet decided about the new ROI for the new customers, but anyways wanted to "pass on" the RBI's hike to existing customers, as they didn't want to "miss" the deadline of 1st August. (with 3-month reset cycle, 1/4th 1/3rd of the customers should have the reset date as 1st Aug.)

Good offer by Axis Bank Home Loan

Looks like Axis bank has an an enticing offer that could work well with existing home loan customers of different banks/NBFCs who have been suffering with atrociously higher interest rates. 

Interest rates are too much competitive and the striking features are: 

1. Very low spread (i.e. 0.40 for loans<25L), yet great final interest rate. Note that lower spread means lower scope of manipulation for the bank in future. (If you don't understand this, wait for my next article in coming days. )

2. ZERO prepayment penalty even for refinance of your home loan. (I had always liked this particular feature of axis bank). Most of the banks charge 2%. 

The only concern might be the high processing fee (Rs. 10000 as they have mentioned in the email). But i'm sure it could be negotiable once you meet the branch managers. 

Those paying @ above 11% stand to benefit much even after paying 2% to your existing lender. I have seen people still paying @ above 13% with the so called top home loan providers. 

Below is the email that i received from info@apnarupee.com

////// email content starts ///////

Dear Sir / Madam

AXIS BANK LTD

Rate of interest for	Rate of interest for	Rate of interest for
Loans upto Rs. 25,00000 Lacs	Loans Rs. 25,00001 to Rs. 75,00000 Lacs	Loans Rs. 75,00001& above Lacs
10.15 % p.a.	10.25 % p.a.	10.40 % p.a.
(Base Rate + 0.40%)	(Base Rate + 0.50%)	(Base Rate + 0.65%)

NOTE -   1. Part payment    - Nil charges on part payment  
               2. Full prepayment- Nil             

              3. Current base rate - 9.75 % 

Special Features *

·      Attractive Interest Rates

·      Tenor up to 25 years

·      No Part Payment / Pre-payment charges

·      Maximum Funding 85% up to Rs. 20 Lacs & above 20 Lacs 80 % of

        The Agreement Value + Stamp Duty +   Registration charges + Electricity

        + Parking+ one time maintenance + service tax + vat

·      Fixed and Floating Options

·      Monthly Reducing Balance

·      Simple Documentation

·      Balance Transfer Facility

·      Processing Fee 10000 & equitable mortgage fee 0.2% of the Loan Amount

·      Property Insurance & Personal Insurance cover 

 Personalized Doorstep Services.

Documents list    

Personal Details:-

1) Applicant & Co-applicant passport size colour photo.(1 copy each)

2)   Age Proof & Photo ID proof (PAN Card / Driving License/School Leaving Certificate)

3)  Address Proof (latest electricity/telephone/ration card bill/rent agreement/employers  

     Certificate

4) Qualification Certificate.   

5) Processing fee cheque

Financial Details: -

1) Latest 3 month salary certificate /slips

2) Latest two years Form-16

3) Appointment/confirmation letter (if required)

4) Last 6 month bank statement.

5) Repayment track record of loan and supporting banking (if any)

For further details contact:

-- removed -- 

Regards

-- removed by Abhijeet

////// email content ends ///////


Disclosure: The author of this blog himself has availed loan (current interest rate 10.25 after paying multiple conversion fees to lower the interest rate) from HDFC and would like to shift to different bank provided he gets a better deal. 

The must-ask question before taking a loan

HDFC has increased its RPLR (Retail Prime Lending Rate) by 50 basis points wef 16th May 2011. 
Now it "stands tall" at 16.00%


At the time I took my home loan in July 2008, 
the RPLR was 13.50%, and I was offered the loan at 10.25% ( i.e. spread of -3.25 over RPLR)


Had I not paid them multiple times (0.5% of outstanding principal each time) to "reduce" the interest rate, the interest rate would have been 12.75% (i.e. 16 - 3.25 = 12.75), whereas HDFC is still offering interest rate of 10.25 for the "new" new customers. 


Understand these consequences before you sign the loan agreements. 


The must ask question to your lender before you take any home loan: 

What are the maximum and minimum interest rates you are charging to your existing home loan customers?

I wonder if you'll at all get the answer on paper. Let me know if you do. 


(As an extension to this post, I will write on the consequences of spread changes, better spreads offered to new customers, and why should you go for Base rate instead of PLR)

HDFC charges Rs. 100 per transaction (online)

When I took my home loan in July 2008, HDFC was insisting that i sign up for ECS. Eventually i did, but only to cancel it at the end of the 1st month. 


The reasons i cancelled it:
1. They just had only 2 dates for ECS i.e. 10th and 25th of every month. I was asked to choose between these two. I had argued that i should have the right to decide the ECS date but they did not oblige. So i had cancelled it after one month. 
2. HDFC usually allows you to pay your EMI outstanding by the end of a month (say april 2011) upto the 5th of next month (i.e. 5th May 2011). So i thought why should i make the payment on 10th or 25th if i have the option to pay it by 5th of next month?
3. There was (there still is) an option to pay your EMI online. I thought it was the easiest option compared to PDCs or ECS. 


So i quickly switched to the online payment method and was quite confortable in it. 
I would usually pay my EMI anytime between 1st and 5th of the subsequent month and it went smoothly. 
But there was a glitch. Whenever i paid on either 4th or 5th, HDFC would send me a notice on 4th (which i would receive it by 8th or 9th) that my EMI was overdue and so and so interest was charged extra. 
Though (and obviously) these notices didn't have any impact on my account as i would have had already paid the EMI before 5th so the notices were not to be taken seriously. Still i contacted HDFC several times to stop the useless notices. Each time i protested, they suggested i use an alternative payment method like ECS, PDCs etc. They really pressed for ECS, but continued insisting the online payment method. 


Suddenly in October 2010, HDFC put a notice on their online portal that all online payment would incur a charge of Rs. 100 per transaction. It was really shocking. 
Payment of EMI using netbanking is just like an NEFT transaction and it should not involve any extra charges than what banks charge (Correct me if this is not the case). I have seen most of the banks charging a maximum of Rs. 5 (Rs. five) per NEFT transaction for a transaction below Rs. 1 Lakh. 


But this was HDFC's way of discouraging people from using online facilities. 
I contacted them and explained to them that they should not charge so much for just paying an EMI. Afterall it was not a credit card or a debit card. Rs. 100 is very high in any case for debiting the EMI amout from your bank. 


Their reply was more shocking. 

"Web payments are not used by customers to make monthly EMI payments and are used only selectively by those customers who are outside India.  This paymode is not offered in the offer letter. As mentioned in my earlier reply, you can submit post dated cheques."

I was literally spellbound after seeing this reply. I told them that the whole world was moving online, and you were being regressive by penalizing those customer who are trying to go online. 

As i didn't have any other option, i finally decided to continue the old way of paying by PDCs. 

But this time I gave PDCs dated 3rd of every [subsequent] month. 

Earlier, if i had made online payment on 3rd, HDFC would get it on 3rd or 4th. 

Now HDFC dutifully deposits the cheque on or after 3rd, (Usually 5th of every month), it then gets cleared by 6th or 7th. The cheque also exchanges many hands increasing the workload of HDFC's employees. 

Dear HDFC, please tell me, did you really benefit by discouraging the online payment?

Planning to change the name and url of this blog

I am planning to change the name and url of this blog, as i am willing to cover the home loan industry as whole and not just hdfc.
Suggestions welcome. 

End of teaser loan era

Finally SBI, under pressure from RBI, has ended the teaser loan campaign.
This is a big blow for existing customers (irrespective of the their lender) who are having loans very high high interest rates.

Teaser loans with lower interest rates for first 3 years were taking care of the switching cost (generally 2% of the outstanding principal) of the existing home loan. It has now gone. It is very easy to guess that private players might be behind the so called "pressure" from RBI.

It's funny that RBI is more concerned about teaser loans than the plight of such existing customers, and surprisingly, in the pretext of "concern" for existing customers. 

The myth of spread change "facility"

(Note: I'm really sorry that this post has not been phrased properly and readers many find the post unorganized and points scattered. )

HDFC boasts of providing you with the convenience of increasing your spread (thereby reducing your interest rate) by paying a so called "conversion fee"

Before going into the details, here are the facts about the "conversion fee"
1. HDFC doesn't give any acknowledgement of the fees paid (Though they pay service tax on the amount  you pay)
2. The conversion fee is NEVER reflected into your account statement
3. The conversion fee is not "seen" online. It won't reflect in any of the "transactions" like EMI, prepayment etc
4. The formula of the conversion fee changes all the times. Ask HDFC about how many times they have changed the formula.
5. The letter you get after spread conversion doesn't at all mention about the amount you paid as a fee. It doesn't even say anything like "subject to realization of cheque etc etc"

In short, HDFC makes sure that the conversion fee is never documented, atleast at the places where the customer can see it. They might record it internally, but for a customer it is completely hidden.

When hard pressed for the receipt, what they give is a copy mentioning it as "conversion". You may draw your own inferences.

Now let's look at HDFC's claim that atleast they provide this facility, compared with other banks who do not do so.

From my experience, HDFC's PLR is like the horse that moves 4 steps forward, and 1 step backward. So when i took the loan in July 2008, it was 13.5, while now it's 15.5. Anyone can tell you that market conditions in July 2008, and April 2010 are relatively comparable. If you compare the interest rates that were being offered in 2008 then you'll find that they were slightly lower than that are being offered today.

But the similar thing doesn't apply to those who have taken loan from HDFC in july 2008.
Whoever took the loan from HDFC in July 2008 would have been offered the interest rate of 10.25 (give or take 0.5 depending on your credit worthyness), while the same would have been 12.25 by now.

Now new customers get it at 9.75 from HDFC. The old customers can also get down to 9.75 but then they must have either paid 0.5% (of the outstanding principal) 3 times to keep up with the new customers, or 1.5% in one shot.

This is what happens when you "avail" the facility of "spread change" provided by HDFC.
I would request you to write down the "lowest spread" you had on your account, then the readers can determine that the rate of interest you would have to pay had you not approached them for spread conversion.

From my experience, to keep one's interest rate down and comparable to the new customers, an average HDFC customer has to pay 0.5% (of the outstanding principal) every year. Calculate this for your tenure of the loan and you'll get to know why it's a myth and HDFC is not doing any favours to you.

Let me know your experiences and opinions on the same.