Most teaser rate home loans have started turning into
floating rate from April 1, 2012. With floating rates being in the range
of 11.50-11.75 per cent, it compares unfavourably to new consumers who
are able to get such loans in the range of 10.50-10.75 per cent. The
savings on interest during the teaser period will be completely wiped
out by the additional 0.75-1 per cent that you pay now versus a new
consumer going in for a regular floating rate loan.
The National Housing Bank (NHB), which governs housing
finance companies such as HDFC or LIC Housing Finance have mandated
that no prepayment charges can be charged on floating rate home loans.
Unfortunately in a later circular they have “clarified” that prepayment
charges are payable if the loan is transferred to another lender in
the case of teaser rate loans even after they have turned into regular
floating rate loans.
The Reserve Bank of India has also formalised the ban on pre-payment
charges on floating rate home loans but have yet to clarify the position
on chargeability of pre-payment charges on a teaser rate loan after
it has turned into a floating rate loan. In an extreme example of ‘misusing’
the NHB circular as an escape route, a major housing finance company
has come out with a three month fixed rate scheme at 10.40 per cent
and then shifts it to a floating rate loan (currently 11.90 per cent).
This is far in excess of what the consumer will be
able to get as a regular floating rate loan ab initio. To escape, the
customer has to pay high pre-payment charges which are at 2.25 per cent
(including service tax). This is only an extreme example of how this
escape route is being used by the lenders to continue to discriminate
against existing borrowers. Most major lenders now have dual rate schemes,
which provide no benefit to the consumers.
After all how does fixing your rate for 1-2 years on
a 20-year loan make sense that too at or above current floating rates
especially when interest rates are likely to fall? The consumers clearly
are not aware that there would be a pre-payment charge if they shift
their loan even after the loan has turned to a regular floating rate
loan. The entire purpose of existence of dual rate loans now seem to
be to snare consumers into a long term loan contract with guaranteed
unfair terms and high exit penalty.
So whether you are a teaser rate consumer now paying
a high floating rate or a new consumer seeking a home loan the one thing
that you should avoid is the dual rate loan. Just take/shift to a regular
floating rate loan to ensure that the lender treats you fairly in later
years.
