If you are planning to buy a home, the window for getting a low cost loan has opened for a little longer. India’s largest home finance company HDFC has extended its “teaser rate” scheme by two months, for all loans taken till the end of June.
This comes a few days after India’s largest lender, State Bank of India, extended its teaser rate scheme to end-June.
The teaser rates are special low rates given in the initial period of a loan to draw in customers. The interest on loans is gradually raised to the actual market rates over a period of time. Under the current scheme, HDFC is offering an interest rate of 8.25 per cent for the first year.
Consumers can get this rate till the end of June. However, this rate will be available only till March 2011. For the year after that, the company will charge nine per cent.
As of now, the actual rate on home loans is 9 per cent up to Rs 30 lakh and 9.25 per cent for loans above that amount.
At 9 per cent, the monthly instalment on a Rs 10 lakh loan of 20 year duration will work out to Rs 8,998 a month. At 8.25 per cent, the EMI falls to Rs 8,521.
Earlier this month, SBI had extended its teaser rate scheme by two more months.
SBI offers an interest rate of 8 per cent for the first year and 9 per cent for the two subsequent years.
Apart from a reduced outgo, teaser rates also help consumers by fixing the interest rate, albeit temporarily.
On most home loans, interest rates are revised every three months. Also, this stability comes at a time when interest rates are expected to go up — as the economy recovers and Reserve Bank of India tightens the screws on the financial sector.
In the recent months, RBI, the banking regulator, has expressed concerns on the teaser rates. The central bank feels that loans with rising interest rates could lead to defaults later on, when interest rates reach their actual levels.