HDFC repackages teaser home loan rates

Largest mortgage lender HDFC today launched controversial teaser rates for home loans in its new avatar, a day after country's largest lender SBI hinted at the possibility of extending this product beyond September.

HDFC today launched a dual rate home loan (DRHL), which is part fixed and part floating. The new DRHL-4 offer will be applicable to all new home loan customers, who apply on or before September 30 and take at least part disbursement before October 31.

"Under this offer, home loans will be available at a fixed rate of 8.5 per cent up to March 31, 2011, 9.5 per cent for period between April 1, 2011 and March 31, 2012 and the applicable floating rate for the balance term," it said.

The new offer comes after the discontinuation of its old scheme, DRHL-3, under which home loans were provided at 8.25 per cent for the first year, 9 per cent for the second year and at a floating rate afterwards.

Yesterday, SBI had said it might continue its 8 per cent concessional home loan, popularly known as teaser rates, beyond September 30.

"Eight per cent rates is a viable proposition and there is no reason why it should not continue," SBI Managing Director S K Bhattacharya had said yesterday in Kolkata.

He had said that a decision would be taken at SBI's next Asset Liability Committee (ALCO) meeting.

SBI had earlier extended its 8 per cent special home loan scheme, for a month with some changes. Under the existing scheme, the loan attracts an interest rate of 8 per cent in the first year, and 9 per cent in the second and third years.

From the fourth year onwards, home loans up to Rs 50 lakh are charged 9.25 per cent interest rate, while higher loans carry 9.75 per cent interest rate.

Meanwhile, the country's largest private lender ICICI Bank had discontinued its teaser home loan rates a few months back.

However, the country's banking regulator RBI had earlier expressed concern at banks offering home loans with teaser rates where monthly instalments rise after the initial years.

It fears that borrowers may find it tough to repay the loans once interest rates go up after the first couple of years during which the rates are pegged at a fixed rate.