Teaser home loans:A look from above
In a move to rope in home loan seeking customers, most banks in India with time have indulged in numerous marketing strategies and ‘teaser loans’ is one of them. During the initial period, teaser home loans maintain its appeal with discounts and attractive interest rates, however, after a specified tenure, it bounces back to the then prevailing base rates.
From a positive outlook, teaser loans propose a good start for customers in case of a long term loan commitment. At a time when rising interest rates has emerged as a real headache for home loan borrowers, getting a discount for even few years on the loan sanctioned is no less than a boon.
Origin
High monthly outflow that could take a toll in individual savings, has put a damper on the borrowing sentiments of customers in India. In a bid to get the attention of the customers and encourage them to avail loans, major banks in India (such as SBI, HDFC and ICICI) have introduced the concept of teaser loans in 2010.
The sole motive of introducing the concept of teaser home loans into the lending system is to sop up the additional liquidity, which can lull the lending market into a dormant state. Traditionally, such loans are introduced when the economic condition in the country is in dire need of a catalyst to sustain its momentum in the lending market.
What it offers?
Teaser loans have something for all in its bag. For starters, such loans are generally 2 or more percentage lower than the usual prevailing interest rate. Typically, they are dual loan rate schemes, with fixed number of years(initially) charging a specific interest rate.
By the end of its time-frame, such loans shift to floating interest rates. According to experts, as property prices head for a fall and concepts such as ‘affordable housing’ coming into the limelight, such schemes are expected to offer a much feasible option to the first time home buyers.
Important factors-Property age and pre Approval
Age of the property is an important factor that cannot go unnoticed. The older a property is, the higher the chances of rejection or increased down payments. Banks, generally, offer 85% of the capital for a housing project, however, this rolls back severely in case of an old property.
Pre-approval is a crucial aspect that needs special mention, in case of teaser home loans. When a bank validates the title documents for a specific builder, it automatically becomes pre-approved. This, eventually, expedites loan sanctioning for a pre-approved property, especially in the case of PSUs.
Banks play a vital role
Teaser loans paved its way into the market to boost the demand for housing finance in the nation and sinew the economy. The first entry in this regard was made by State Bank of India with its Easy Home Loan. Following its footsteps, HDFC, Axis Bank, ICICI and Canara Bank made their entry in the market and became a major hit, by slashing their loan rates significantly.
State Bank of India– offers 8% for the first year and 9% for second and third, after which 11.75% at floating rate is charged for the rest of the period.
HDFC Bank-offers 8.25% for the first year and 9% for the second year and thereafter floating rate of interest. For loans below Rs. 30 lakh, the rate would be PLR (Prime Lending Rate)minus 4.75%, while for loans above Rs 30 lakh, the rate would be PLR minus 4.5%. As per market news, HDFC has raised its prime lending rate by 10 basis points to 10.75% effective 1 December 2013.
ICICI Bank: Offers 8.25% for the first year and 9% for the second and from the third year, prevailing floating rate will be charged.
