Even as the industry, government, banks and housing finance companies in the beginning of the first quarter of 2015, in a smart move, the housing finance major, HDFC Limited and ICICI Bank have launched their special schemes where they are looking to offer loans to prospective home buyers at fixed rates for a certain period at interest rates that are close to their floating rate loans. While the interest rates will be fixed for 1, 2, 3 and 10 years depending upon the scheme and the bank/HFC opted for, it will automatically switch to adjustable rate home loan without any charge after the completion of the tenure of the scheme.
Within its Trufixed scheme HDFC is offering an interest rate between 10.15 and 10.35 per cent for two and three years and an interest rate of 10.25 to 10.5 per cent for the 10-year option. On the other hand ICICI Bank is offering a fixed rate of 10.15 to 10.5 per cent for 1 and 2 years and an interest rate of 10.25 to 10.5 for the 10-year option. This means that even though the loan sought is for 20 years, it will get fixed for 1, 2, 3 or 10 years depending upon the option selected.
HDFC’s offer is available to customers who apply for the scheme by January 31, 2015 while ICICI Bank’s scheme will end on December 31, 2014.
How is it beneficial?
Fixed rate loans are generally priced 100-200 basis points above the floating rate loans but under this scheme the customers are getting their loans fixed for a certain period of time at rates that are around the floating rate loans. It is also good for customers who want a peace of mind on the front of interest rate fluctuation.
Should you go for it?
Before you fall for the scheme it is important to note that the offer comes at a time when the interest rate in the economy is set to go down. Even Keki Mistry, VC and CEO of HDFC Ltd had earlier told The Indian Express that he expects a rate cut between 50 and 100 basis points in the next calendar year.
If RBI goes for a rate cut by 100 basis points over the next one year then home buyers who go for these fixed rate schemes will miss out on the advantage of a rate cut in the economy and the pass-on benefit that will be available to the floating rate loan customers.
However, home buyers who do not want any fluctuation in the home loan rates over a long period of time may look to go for the 10-year option and they will not see their interest rates or equated monthly installments move up or down over that period.
The scheme however would have been very attractive if it was offered when the interest rates were low and were set to rise as in that case the customers could have locked themselves at low interest rates.