pcpune

Some of the banks have announced, teaser rate home loans in last 1-2 years, but take extreme caution of subscribing to them. Also,they will be of no use after July 1,2010 once the base rate system ticks in.

Teaser Rate Home loans- provide the interest rates at a lower rate in intitial years and then subsequently increase the rates after 1-2 years, just to lure NEW consumers to take the home loans.

However, I suggest to NOT go in for the teaser home loans - even from SBI.

If you read the banks balance sheets, you will know that since 2008-2010, banks are in a negative interest rate regime, meaning they are losing money if they keep lending at 8-9% pa. Hence, most banks know that once you take a loan, interest rates would climb to 10-12% in near future, they would make up for the losses, and if you want to prepay then, they have put in a 2% penalty clause.

If you look closely, all banks, who have given this 8-8.5% interest rates OFFERS, or teaser loan offers, have penalty clauses built in, that includes even SBI.

Only some PSU banks like Central Bank,BoB,etc(many more) dont have penalty and reset clause, but they charge atleast 9-9.5% interest rate even now. So, if you are an intelligent loan taker, always consider ALL options, and the terms and conditions.ALso,consider your EMI on 10% interest rates and not on the current rate which the bank is offering.

The new base rate system will do away with this trick once and for all.

bheeshma

you are correct. Long term interest rates should be calculated using the most pessimistic scenario. However, if the interest rates go beyond 10% it will be really sad for the economy. I hope that doesnt happen.

pcpune

ICICI Bank has again launched a Teaser rate for what 8 days, .

It will check whether SBI and HDFC will extend the scheme, and it will also do so.

My TAKE - STAY AWAY from SBI,HDFC AND ICICI BANK for any type of loans!!!

harishkulks

P C hidambaram of Pune...

m_square

Banks are free to chose base rates.. So the competition will arrive.. even 0.5% differeence would tilt the preferences of people towards a particular bank..

people taking teaser loans would definitely be benefitted than the rest for initial 1-2 years

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maxcapri

does not make sense friends...I'v got no idea abt new base rate system

but if u have lesser rate initially n then change over to existing rate wats the loss?
imagine if I take a teaser rate loan n then I part-prepay say watevr max allowed aft 2 yrs ..for which thr r no charges if part-prepayment is less than 25% of outstanding...
so I can reduce my EMI or tenure..n get the benefit.

How does some1 else goin by normal rates scheme get the benefit if he is paying same interest for say same amt and time

pcpune

Well, you need to take a example and compare that yourself. If you are in a position to pay 25% after 2 years, why take 100% now, take 100-25% , ie at 75% now.

The teaser rate schemes, have :

1. Higher Penalty Charges
2. Higher floating rate charges once the low rate tenure is over.
3. Basically, the bank knows that you need pay say at 10-11% even for 8-15 years, which would make up for the losses in interest for first 2 years.

Hence, it is better you catch the bull by its horns now, instead of delaying to catch the bull.

The people who take loans from conservative PSU banks with NON-TEASER RATE schemes have option open to change to BASE RATE system.

Base Rate System - is the minimum rate that is offered by the bank on a loan to anyone -individual,corporates,etc. This way for a retain home loan product, there will be only ONE base rate from ONE bank instead of many different rates. (For eg, today ICICI bank home loan customers rate very fro 8.5% to even 14%)

Now, imagine the base rate for SBI is 9% and you are paying 10-11% just because you subscribed to the teaser loan scheme.

It is your choice, but I always believe why to burden your future for a very short "lower EMI" present.

rsatitkar

pcpune,

I do not understand what you are trying to say. I have an example of HDFC wherein ROI is fixed for first two years at 8.25% & after that it is linked to their PLR (Prime Lending Rate). For this they offer a spread of (PLR-5), which is the maximum spread they are giving to any customer as of today. This comes to 8.75% ROI as of today.

Now the rate of interest can not change for first two years as it is 'Fixed' and not floating. So the change would come in effect only after two year. So at that time if Base Rate system is in place then I think it will be applicable to all customers & thus ROI for teaser rate home loan customers would be at par of the ROI for other customers. This is because sole idea behind bringing in basse rate system is that banks should charge same ROI for old & new customers, which is curretnly not the case.

pcpune

I dont think the floating rate calculation is correct at 8.75%, all banks have in the range of 9-9.5% interest rate as of today.

It is better you re-read the agreement clause for the Teaser Rate agreement which you have made.Base rate system is not going to be automatic for previous loan takers
The statement made by banks is -
Hence, for retail loans such as home loans or personal loans, the bank will have to deal with customers on a case-by-case basis and help them migrate to the new benchmark subject to mutual consent,”

RBI has suggested that banks convert to base rate after initial fixed rate system without any fee but banks are still evalating and but WILL not agree on the same as they would have to make up for the losses.

PLEASE REMEMBER WE ARE IN A NEGATIVE INTEREST RATE REGIME - THE ACTUAL INTEREST RATE SHOULD BE 9-10% and not 8.25%.

Somebody has to pay for the losses.

Now imagine the floating rate based on PLR after two years (should be between 10-12%) HDFC will charge a 2-5% penalty to get it converted into the base rate system.

Also, it may not give you the option of not converting at all.

My suggestion = get it converted to base rate as soon as it arrives (July 1), things will be much different after 2 years with rising inflation,rising fiscal deficit,elections,etc.

m_square

^^ the loan interest rate would automatically follow base rate system after the said 2 years.. I have confirmed it from the HDFC Bank