With the rising competition in the home loan market, banks are offering a number of innovative products to attract customers. Besides, the floating rate home loan and fixed rate home loan, a number of products which are combination of the two and coupled with myriad types of repayment facilities have been offered by the banks.

Part-fixed, part-floating
A home loan product which is the combination of floating rate and fixed rate home loan. In this, the borrower can opt for a portion of the total loan under floating and fixed rate scheme. Normally, the interest rate on fixed rate home loan is one percentage point higher than that on the floating rate loan. But, in the fixed rate home loan, one is insulated from the risk of rise in the interest rates in future.

Short-term bridging loan
If you are planning to move into a bigger, better and more convenient house, short term bridging loan is the product you can go for. You own a small house and now you want to buy a bigger house. But, you do not want to sell the existing house before buying the bigger one. This creates a mismatch in the cash flow. The short-term bridging loan will help in the interim period between the sale of your old house and the purchase of a new house. Short term bridging loans are easy to arrange and repayable in either lump-sum payment of principal or installments.

Step up repayment facility
Another product in the home loan segment is Step Up Repayment Facility (SURF). It helps the young borrower who just has started his career. As the starting income of an young professional is low, the initial EMI is fixed at lower level. In some cases, the initial EMI could be just equal to the interest portion. Later as the borrower's income increases, the EMI increases and the borrower starts repaying the principal amount too. This scheme helps the young borrower to borrow a large amount. The loan amount is directly related to the EMI and the monthly income.

Flexible installment plan
In the Flexible Loan Installment Plan (FLIP), the EMI reduces as the time passes. This product is for joint borrowers. But, if one of the applicants of the joint borrower retires earlier the repayment is front-loaded. That means during the initial period, the EMI is high, when both the applicants are working. This repayment amount is reduced when income is scheduled to decline after a certain time during the loan tenure, after the retirement of the borrower. Therefore, FLIP offers step down repayment facility.

Smart fix home loans
Many banks are now offering three years fixed and floating rate thereafter. This type of loan offers the safety of fixed rates plus the advantage of floating rates. The smart fix enables the customer to lock at fixed rate of interest at present with the contract to move to a floating rate on a subsequent date. For the first three years you get a fixed interest rate and from the fourth year, your loan gets switched to the prevailing floating interest rate.

Home savers
Foreign banks like Citibank, HSBC and Standard Chartered Bank have launched this product, which helps the borrowers to use their surplus cash to reduce his repayment liability. In this, bank opens a current account on the borrowers name and links it with the home loan. Whatever money is deposited in the current account is used to prepay the principal loan amount. This leads to lowering of the interest liability. But, if the borrowers want to withdraw the amount deposited in the current account, he is free to do so. Therefore, the interest part of an installment depends on actual loan outstanding during a period. This helps in the faster repayment of the loan.
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  • Thanks to the author !!!

    Wow, Prabhakar Sinha of Economic Times has analysed the home loan segment in such a comprehensive way !!!

    He has all the rights to be quoted along with the above quote.
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