Duel over dual rates breaks out on Home Loan St

After ICICI Bank and Housing Development Finance Corporation (HDFC), more players are set to offer dual-rate home loan schemes under which the repayment rate will be fixed for a few initial years and then a floating rate applies.

Edelweiss Housing Finance last week launched 2-year and 5-year fixed rate loans, while LIC Housing Finance is kick off with a five-year fixed. This will be the second launch for LIC Housing Finance.

“We had launched ‘Advantage 5’ in 2010 and it went on for one year. We disbursed about Rs12,000 crore under that. This time our scheme will have a better response than HDFC’s,” said VK Sharma, director and chief executive, LIC Housing Finance.
Under the 5-year fixed, HDFC charges between 11.25% and 11.75% per annum depending the amount.

That’s because, Sharma said, LIC Housing Finance will keep rates more attractive, he said early on Friday. By evening, the lender announced rates are in the range of 11.15-11.65% for its ‘New Advantage 5’ home loans.

There are yet others who may join the race.

“We are not ruling out the possibility of doing something similar. After the Reserve Bank of India’s monetary policy review this month, we will take a final call,” said Ram Sangapure, general manager (retail banking), Central Bank of India.

RK Bansal, executive director (retail banking), IDBI Bank said more or less the same thing.

Experts said this scheme will lead to customers paying more.
“It definitely does not make sense to opt for such a scheme at this point of time when interest rates are close to peaking out. It will be better to opt for a floating rate scheme now,” said Harsh Roongta, CEO, Apnapaisa.com

One or two years back, it would have made more sense, said Anand Narayan, national director-residency, Knight Frank India, an international property consultancy firm.

“Go for the floating rate now,” he also recommends. “Opting for a floater could help one get better discounts on big-ticket loans, which is difficult in fixed rate schemes.”

Maneesh Srivastava, CEO, Muthoot Housing Finance, said the company does not intend to offer any dual rate plan.
“That’s because the segment of customers we are catering to is at the lower end of the income pyramid. So we just want to give them a straight and simple product,” he said.