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| Edited By: Khyati Dharamsi,Neelasri Barman |Source: DNA |Updated: Mar 17, 2018, 02:57 AM IST
Ultra-cheap housing loans are soon going to be a thing of the past. Banks are winding down their fixed-cum-floating rate home loan schemes, where rates were in the 8-8.5% plus range for the initial year, with the provision that rates may be raised later.
Axis Bank has already withdrawn its fixed-cum-floating rate loan and Union Bank of India told DNA that it was withdrawing its teaser loan scheme starting February 15. “We will be offering floating rates of interest starting February 15,” said a bank official.
Housing Development Finance Corporation (HDFC) has said that its scheme is available till February 13. Will the scheme, where the interest rate is 8.25% initially (and then converted to floating) be extended? Keki Mistry, chief executive officer of HDFC, said no decision had been made as yet. “Basically the product is a function of how we are able to raise (cheap) money. It will be decided closer to the date,” Mistry said.
Other teaser home loan schemes, including that of the State Bank of India, are expected to be reviewed shortly.
State Bank chairman OP Bhatt has already gone on record to say that he expects rates to rise after April.
Industry experts feel there is a need to put a brake on these fixed-cum-floating rate schemes due to the changing interest rate scenario. RR Nair, chairman of LIC Housing Finance, says: “These schemes need to be stopped now. It is not a right business tactic. Any discount of more than 50 basis points (0.5%) on a promotional basis is not good. This means your existing customers are paying much more then the new customers. You are creating a different class of customers.”
He also voiced concerns over the period of current teaser loans, where the fixed rate ends and the floating rate starts after the initial year of the home loan. “After the one-year period, will the customer be able to afford the loan if the EMI goes up by 35%. It is a concern for both customers and the institution (home loan provider). Bad loans too can rise,” Nair said.
Signalling that interest rates on loans would rise, IDBI Bank on Wednesday announced a rise in fixed deposit rates by 0.25% for varying periods between six months and 1,100 days. The bank now offers 6.75% on a one year-500 day deposit, rather than 6.50% earlier. On 500-day deposits, one can get 7%.
