HDFC8217;s adjustable rate loans8217;

MUMBAI, JUNE 28: Housing Development Finance Corporation HDFC on Tuesday introduced floating rate products with the launch of adjustab...

MUMBAI, JUNE 28: Housing Development Finance Corporation HDFC on Tuesday introduced floating rate products with the launch of adjustable rate home loans8217; ARHL.

The premier housing finance company 8211; with one million customer base and about 60 per cent market share 8211; has linked its ARHL to its newly introduced retail prime lending rate8217; RPLR which is pegged at 13.5 per cent. At present loans up to Rs 5 lakh will be at the rate of RPLR 13.5 per cent while loans above Rs 5 lakh is pegged at one percentage point higher than the RPLR 14.5 per cent.

HDFC said that its ARHL will be revised every six months, quot;only if there is a change in RPLR8217;,quot; adding that there will be no prepayment charges on ARHL and customers will be provided with an annual statement of account indicating the details of principal and interest paid during the year. 8220;The maximum term for these loans is 15 years and repayment in equated monthly instalment EMI will be on annual rest basis,quot; HDFC said, adding that a processing feeof 0.8 per cent and an administrative fee of one per cent is payable.

Despite the introduction of the floating rate loans, HDFC has decided to keep the EMI unchanged while the principal and the interest components of the EMI can be revised, depending on the fluctuations in interest rates.

This is a fallout of the housing finance company using term adjustment method8217; which means that if the interest rates go up, the interest component will go up correspondingly while the principal amount will be adjusted to keep the EMI at the same level. quot;This is to help salaried customer to adjust to the changes without affecting his monthly outflow,quot; HDFC said.

Commercial banks which traditionally offer floating rate housing loans 8211; linked to PLR 8211; have recently started offering fixed rate loans as well. The State Bank of India and HDFC have introduced fixed rate loans which are pegged at a slightly higher level than their floating rate loans. By introducing floating rate loans, HDFC will be in direct competitionwith commercial banks in the housing loan segment.