The festival season is the time when people start thinking in terms of making big ticket purchases. This is when purchasing or investing in a home is considered very auspicious. And builders fill the newspapers will glossy advertisements of flats on sale. But interest rates for home loans have been going through the roof for the last couple of quarters. At the same time, consumer price index inflation is stubbornly stuck at double digits. As a result, people are in two minds about buying a home. In such a scenario, banks are offering innovative schemes to lure borrowers. We take a look at some of these offers and try to decode them.

Dual rate schemes
Dual rate scheme fixes the interest rate for first few years and then changes it to the prevailing interest rate. The prime example in this category is ICICI Bank’s home loan scheme. It gives home loans with interest rate fixed for the first and second years. After the second year, the interest rate charged will follow the prevailing interest rate. The prevailing interest rate will be the base rate of ICICI Bank plus the premium. The premium can be anywhere between 0.5 per cent and 1.5 per cent, depending on the size of the loan.

ICICI Bank offers this scheme in three variations: Fixed rate for 12 months; for 24 months, and for 36 months. If you want fixed rate for one year, a loan belowRs 25 lakh would come at 10.5 per cent interest rate; loan betweenRs 25 lakh andRs 75 lakh at 11 per cent and aboveRs 75 lakh at 11.5 per cent.
In fixed rate for two years and three years categories, belowRs 25 lakh loan would come at 10.75 per cent interest rate; loan betweenRs 25 lakh andRs 75 lakh at 11.25 per cent and aboveRs 75 lakh at 11.75 per cent.

Discount on processing fee
This is one of the ways to provide discount on the total cost of loan. Punjab National Bank has done away with processing fee completely. This will certainly lower down the cost of loan.

Concession on home loan
State Bank of India, Dena Bank, and Corporation bank are giving discount of few basis points for home loan till the end of this year. SBI and Dena bank have offered discount of 0.25 per cent, while Corp-oration Bank is offering up to one percent discount. Corporation bank has also waived off 60 per cent of the processing fee.

Progressive monthly instalment scheme
A few banks are providing loans on progressive monthly instalment sch-eme where the borrower’s liability or EMI is based on increase in sal-ary. Hence, the EMI will be lower in first few years and will be regular after the period.
Corporation Bank offers this scheme. This scheme is good for young people who expect their salaries to rise in future.

Fixed rate home loan scheme for few years

This is another addition to the schemes offered by banks to home loan borrowers. HDFC Bank is offering two variants of the scheme. Home loan borrowers can choose either three years fixed or five years fixed home loan scheme.
For three year fixed rate plan, less than 30 lakh loan would come at an interest rate of 10.75 per cent, a loan betweenRs 30 andRs 75 lakh would come at 11.25 per cent and aboveRs 75 lakh at 11.75 per cent.
The five year fixed rate would be 11.25 per cent for a loan belowRs 30 lakh and 11.5 per cent for the loan betweenRs 30 lakh andRs 75 lakh. The loan aboveRs 75 lakh would be come withRs 11.75 per cent.

Fixed rate home
loan scheme

Fixed rate home loan scheme is offered by Axis Bank. This fixed rate will remain fixed for the complete tenure of the loan. This scheme is known as Nischint. There is no change in EMI and no surprises. The EMI will be set once and for all. The interest rate is 11.75 per cent.

Points to note
Due to the rising interest rate scenario and stiff competition, product innovations abound in the market. However, borrowers should take care to weigh the pros and cons of each scheme before they commit themselves. Finally, borrowers should compare the rates and overall charges from different banks to arrive at the effective cost of the loan and then make their decision.

The general perception in the market is that interest rates are near their peak; they may go up once or twice and then begin a downward trend. Keeping this asp-ect it mind, explore the home loan options available with an open mind, especially if you have bagged a good home deal.

On the other hand, borrowers should do their due diligence where the interest rate or EMI in the initial years are low. Borrowers should arrive at a rough estimate of the possible interest rates after the initial years. Ask the bankers to explain why their scheme is better than others; don’t get lured by just one or two factors.