Teaser loan schemes are personalized products introduced in the market in order to entice more clients. Although most of the banks have stopped offering teaser loans, SBI and HDFC Bank still offer these loans. With these schemes the customer can make a choice and reduce the interest rate during the initial years of the loan.
However these loans are offered with certain eligibility criteria which help the bank in deciding whether the person is eligible of not. SBI as well as HDFC compute the eligibility according to their prime lending rate, and not on the 1st year’s rate of interest.
Also even if these loans do not have any prepayment penalty, the flexibility of payment is absent in these loans.
Talking about 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.”
But there are few other products available in the market which give the customer more flexibility. Step up repayment facility (Surf), Flexible loan installment plan (Flip) and Home saver account are few such products.
In Surf, the borrower can pay smaller EMIs in the initial years of the loan and increases over a period of time, the case is opposite for Flip. In Flip the borrower has to pay higher EMIs in the initial years which lower over the period of the loan.
In the home saver account, the home loan account of the customer is linked to the current account of the customer. The bigger the sum of money kept in current account, lower the interest on the home loan.
These products are given by many banks such as ICICI, HDFC, StanChart etc.