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Productcrack: Home loan

Productcrack: Home loan
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First Published: Tue, Aug 23 2011. 08 49 PM IST
Updated: Tue, Aug 23 2011. 08 49 PM IST
Name of the product ?
ICICI Bank Ltd’s fixed interest rate home loan.
What is it?
It’s a home loan, where you need to pay a fixed rate of interest for either one year or two years, after which the loan will move to a floating interest rate (base rate plus the mark-up of the bank). The current base rate of banks is 10%, up from 7.5% in July 2010 when it was first introduced.
What’s the interest rate?
One-year fixed rate: You will need to pay a fixed rate of interest of 10.50% per annum for a loan amount less than or equal to Rs25 lakh. If your loan amount is higher than Rs25 lakh and less than or equal to Rs75 lakh, you will need to pay 11%; and 11.50% will be the rate for a loan amount higher than Rs75 lakh.
Two-year fixed rate: Here, the rate is 10.75% per annum for a loan amount less than or equal to Rs25 lakh, 11.25% for a loan amount higher than Rs25 lakh and less than or equal to Rs75 lakh and 11.75% for a loan amount higher than Rs75 lakh.
what about other charges?
You will need to pay a processing fee of 0.5% of the loan amount along with the applicable service tax. As per the bank’s website, the above mentioned rates are subjected to change without notice.
Is this a teaser loan?
Investopedia dictionary defines teaser loans as an adjustable-rate mortgage loan in which the borrower pays a very low initial interest rate, which increases after a few years. By this definition, this fixed rate loan is not a teaser loan. The reason: the bank is not really offering a discounted rate of interest during its fixed period. At present, floating rates are around 9.99-13.5%, depending on the loan tenor and amount; the average floating rate stands at 11.7% per annum.
Mint money take
Interest rates have seen an upward movement for the last one year or so. While no one can be sure when the rates will fall, experts believe that in the next six-eight months, the rates will soften a bit, if not sharply. If that happens, you face the risk of getting stuck with a higher fixed rate of interest and not benefit from falling rates. If you plan to take the one-year fixed option, you may not lose much since interest rates may just start falling by then. But with the two years fixed option, there is greater risk.
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First Published: Tue, Aug 23 2011. 08 49 PM IST