With HDFC Ltd joining the teaser home loan rate offering with its 8.25% fixed rate for the first two years, there are now 20 banks (13 of them public sector) that offer to freeze the rate for the first few years and float them thereafter. Pitched against a floater that costs between 9% and 11% for a similar loan, these rates look good, sound attractive and are mostly cheaper. But you must know that the hoops you need to jump through to get this loan, are much tighter than those in place for the regular floaters. A loan is all about the risk that the creditor takes. In offering a lower rate, the bank takes on more risk, hence the tighter check on your credit worthiness and ability to pay back. Here are the five hoops that you need to jump through to get
that cheap teaser rate.
Some banks need a guarantor for the loan, or somebody who is willing to pay up in case you default. Preeti Prabhu, 25, a project manager from Mumbai, learnt about it the hard way. She approached two banks that offered teaser loans. Since she had always been financially disciplined and had an impeccable credit report, she thought getting the teaser rate would be easy, but she was mistaken. She says: “One bank wanted a guarantor for the loan. Now, whoever was ready to be a guarantor already had their own loans, so they were not eligible.” Finally, she settled for a more expensive 8.75% floater from Axis Bank Ltd. And no, they did not want a guarantor.
Did you know that banks maintain a most-liked list of builders. There are some builders that will not get a rupee in a loan out of a bank. Says Harsh Roongta, CEO, ApnaPaisa.com, a home loan comparison shopping portal: “Public sector undertaking (PSU) banks are more stringent about the builder requirements, and they are not ready to make exceptions, like private sector banks. The fact that a builder’s reputation plays a role in sanctioning a loan cannot be ruled out.” If your builder is not among the top 10 in the country, the chances of getting that teaser rate from a PSU bank get lower as compared with a private sector bank.
Old property hoop
Graphics: Yogesh Kumar / Mint; Illustration: Jayachandran / Mint
The older the property and the more number of times it has changed hands, the tighter would be the hoop. Says Roongta: “If the house you plan to buy is more than 25 years old or has changed hands more than two-three times, applying for the teaser rates with a PSU bank doesn’t make sense. Consider private lenders simply because they have developed expertise on dealing with the issues arising from such transactions.”
A fourth hoop you must jump through is to get yourself eligible for the teaser loan. Prabhu, for example, found out that she would get the teaser loan only if she worked for the same company for more than three years. “These days, who sticks to one job for that long. I wasted a lot of time going around for these teaser loans,” she says.
Other than job-hoppers, employees of little-known private sector companies, self employed people too find it difficult to meet this criterion of teaser loan rates.
Processing time hoop
Probably the tightest of all hoops is the ability of a person to wait for the time it takes the bank to clear a loan. There are enough instances of homebuyers missing out on a property just because the bank took a long time to process the loan.
Amol Hule, 29, a Mumbai-based lecturer, almost lost the deal. He went to the State Bank of India (SBI) for a loan of Rs7 lakh in July this year wanting the 8%-fixed-for-the-first-year loan deal. With all his paperwork in place, he expected quick processing. As the date to pay the builder neared and he didn’t get any response from the bank, he began to panic. He followed up over and over again. Says Hule, “I visited the office, I made calls, but I just did not hear from them.” He even filed a complaint on a consumer website. The July application was finally cleared in October after 90 days. In hindsight, he feels he should have paid a bit more and got a doorstep service with a 10-day disbursal facility. Adds Adhil Shetty, CEO, www.bankbazar.com, a retail financial products aggregator, “One issue with the so-called teaser loan is the number of pending decisions. A simple Google search will show the number of complaints against PSU banks about processing delays.”
As you begin the search for a bank to tap for a loan, remember that the average processing time for a loan for private sector banks (that usually charge a bit more) is about 10 days. Usually, PSU banks take double the time. The cheap teaser rates will work, but you need to have patience, a great track record, a guarantor, if applicable, and a good builder—all going at the same time.