During the last recession the entire global credit business witnessed a serious resource crunch which led to significant depreciation in the loan disbursal all over the world. The Indian home loan industry also saw a bit of slowdown. Thus in order to attract more and more customers post the global recession there have been numerous attempts by the HFCs by introduction of innovative and attractive schemes on home loan deals. The fixed period low interest rate home loan scheme is one such attempt by the lending institutions. Here are some of the considerations that must be taken into account in order to verify the claims made by the lenders regarding its benefits.
Duration of Lower Interest Rates
This is the most vital factor that shall affect the borrower’s interest in the long run. A scheme offering 5 year low interest period is certainly beneficial for the customer while a 2 year low interest period in a 20 year home loan may provide any significant advantage to the borrower. Thus shorter period of low interest applicability actually reduce the benefits that one may hope to avail through the schemes and exact reworking of all payments made will show a clearer picture of the situation.
Actual Variation of the Interest Rates
This is where the bankers attempt to lure the unsuspecting customer into their ploy which may result in the borrower actually paying a higher overall amount in a long term home loan. The variation pattern proposed by the banker in the interest rates must be carefully analyzed. In case there is an offer of 9% in the first year, 9.5% in the second year, 10% in the third year and 10.5% in the balance of the repayment tenure, it will imply that the loan is much more costly than a conventional home loan of 10% fixed rate of interest throughout the tenure.
Duration of Offer
Another factor that is associated with these offers is the fact that they are available for limited periods of time which means that the customer has to apply at that time rather than as per his requirement and convenience. This could result in preponement of a home purchase or a hasty decision which will not be in the best interest of the customer. One needs to be extra cautious while jumping into the trap of a fixed period low interest loan by compromising on personal requirements from the home that is being purchased.
Exit Penalties
Most of such attractive schemes come with complications in exiting the plan. The prepayment penalty for a fixed period low interest loan may be higher than that for a conventional home loan. Even a difference of 1 – 2% will amount to a big loss for the customer keeping in mind the higher amounts that are involved in home loans.
Thus all may not be as smooth as the bankers advertise it to be in a fixed period low interest home loan. The prospective borrower will have to the exact calculations himself in order to ensure that such a loan actually delivers what it promises prima facie.