Banks warned against ‘TEASER RATES’

Reserve Bank of India (RBI), India’s banking regulator has shown concern for the teaser rates offered by banks offering home loans. The various home loans available in the current market offer constant EMIs for initial couple of years and then increasing home loan interest rates for the remaining tenure. RBI’s concern is based on the fact that borrowers might find it difficult to repay their loans after the initial years when the interest rates are bound to rise. They want the borrowers to be fully aware of the implications of the dual rate system in totality and should not harbor any doubts whatsoever.

RBI’s apprehension originated from the mortgage crisis that occurred in US due to inability of the borrowers to repay their home loans.

These subprime loans (called so because these schemes specially target the lower income groups) have adjustable rate mortgages wherein the repayment installment increases after initial months are quite similar to teaser rates.

Home loan issuers in India have said that the home loans have been sanctioned after careful and complete assessment based on overall liability and not just on initial years rates.

Leading lenders like SBI, ICICI Bank, Canara Bank, PNB, HDFC, UBI have introduced special schemes to tempt borrowers when the industrial and individual demand had been decreasing.

These schemes have fixed rate between 8 – 8.5% for the first 1 – 3 years of the loan tenure and later turn into a market-linked floating rates which will make them at par with any other home loan. Statistic show the upsurge of home loan disbursals as public received theses special schemes with open hands.

Indian Banks Association (IBA) has also supported RBI’s request for greater transparency with customers about the various implications of these special rates.

You might find these relevant:

Banks warned against ‘TEASER RATES’

Leave a Reply