Teaser home loans make a comeback
Oct 23 2013 , Mumbai
3 MNC banks keep it clean to avoid RBI ire
To avoid the Reserve Bank of India’s frown, they have made these products transparent. A few years ago many banks had launched teaser loans but subsequently withdrew them. In case of Citibank and HSBC Bank, the new offering is valid on loan bookings till November 30.
Launched this month, Citibank’s loans offer a fixed interest rate till September 2015; from October 1 that year the interest rate will be variable and linked to the base rate.
According to the Citibank website, the rate (without the home credit facility) will be 10.25 per cent a year till September 30, 2015; thereafter it will be the base rate plus 1 per cent.
Home credit facility is a feature where the amount blocked by the bank in a customer’s saving account reduces the proportion of the home loan.
An example: assume a customer has taken a home loan of Rs 10 lakh and has Rs 3 lakh in his savings account. If he allows the bank to block Rs 2 lakh from this, he will be charged interest rate on Rs 8 lakh and not on Rs 10 lakh.
For home loans with home credit facility, the interest rate will be 10.5 per cent till September 2015 and thereafter the base rate plus 1.25 per cent. Citibank has a floating rate of 10.75 per cent as on date.
Citibank India’s mortgage book grew by 16.7 per cent to Rs 9,949 crore as of March 31 from Rs 8,525 crore a year earlier.
HSBC in an email said its product was launched on September 5. According to its website, the interest rate will be 10.25 per cent for one year and thereafter linked to the base rate plus an existing floating rate margin applicable to the customer segment and the loan amount. According to home loan consultants, the spread after the semi-fixed tenure is 0.5 per cent in the case of HSBC.
“We will send you a communication at the end of your fixed rate tenure. If no intimation is received from you to continue with the new fixed rate offered within 15 days of the communication sent, the loan is by default moved to the then prevailing floating rate. Switching from fixed rate to floating rate is allowed only after completion of the fixed rate term at no additional charge. Switching is not permitted during the fixed rate term,” the website says.
One also has the option of switching from a floating rate to a fixed rate home loan at any time by paying a switching charge of 1.5 per cent on the outstanding loan amount, according to the website. HSBC will charge a processing fee of 1 per cent of the loan amount sanctioned or Rs 10,000, whichever is higher.
Standard Chartered has a base rate of 10.25 per cent with effect from September 12. This bank’s product has a fixed tenure of three years. The interest rate for a semi-fixed rate loan will be 10.26 per cent till 2016. Details of the product were not readily available.
An independent home loan adviser, who has taken a look at the product, told Financial Chronicle that the spread after semi-fixed tenure remained unconfirmed. “The bank will take a call based on the market condition prevailing at that time.”
Sukanya Kumar, director of RetailLending.com, a web-based adviser, said, “Interest rates are likely to go down now and, therefore, locking yourself in a fixed-rate product is not advisable. Also, semi-fixed rate loans have a high pre-closure penalty: it can be 2 per cent or more of the outstanding loan plus service tax.”
“Interestingly, the products are offering a fixed rate which is lower than the existing floating rate. Last time when the teaser products were launched in 2008, the interest rate was higher than the floating rate,” added Kumar.