Leverage more on home loans
By Joseph Samson
Apr 20, 2010
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Teaser loan schemes are customized products launched into the market so as to allure more customers. Although majority of the banks have stopped coming up with teaser loans, SBI and HDFC Bank still continue with these loans. Thus with these schemes allow the customer to make a choice and get the initial years of the loan at low interest rate.

But these loans come with certain eligibility criteria which enmark person as eligible to borrow or not. Both SBI and HDFC products calculate the eligibility based on their prime lending rate, and not on the first year's rate of interest.

Again even if there is no prepayment penalty for these loans, there is no flexibility of payment associated with them.

Ascertaining the issue, R R Nair, director and CEO, LIC Housing Finance, says: "A home loan is a long tenure product; most people take it for 15 or 20 years. A decision to borrow should not be based on the initial rate of interest."

There are some other products available in the market through which the customer can avail more flexible rules. Step up repayment facility (Surf), Flexible loan installment plan (Flip) and Home saver account are some such products.

While in Surf, the borrower gets to pay smaller EMIs in the earlier years of the loan and it increases over a period of time, the case is just the reverse for Flip. In Flip the borrower is made to pay higher EMIs in the earlier years which reduces over the tenor of the loan.

The home saver account the home loan account of the customer is associated with the current account of the customer. The larger is the amount of money kept in current account, lower is the interest on the home loan.

These products are offered by many banks like ICICI, HDFC, StanChart etc.


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