Teaser rate home loans: Knowing just the amount of the EMI or the interest rate is not good enough

You might have identified a property for purchase that suits your requirements. In my previous article ‘How to examine title deeds of house property?‘ among other things, I suggested that buyers consider important aspects before entering into the sale agreement with the vendor for the purchase of a flat/house. In this post, we will discuss how to make an informed decision about borrowing from the right lender.

For most of us Indians, buying a house or constructing a house is the biggest financial decision of our lives. If you are young and do not have enough money to buy a house property from money saved you, a bank or housing finance company will be ready to extend financial help to you to realize your dream.

However, once you decide to buy a house through a loan, give yourself a comfortable time to decide it from whom you are borrowing. This is because, different lenders quote you different rates of interest, different prerequisites like down payments, and other terms and conditions for the loans offered by them. Further, you need to find out all the costs involved in the loan such as rate of interest, processing fees, administrative charges and prepayment charges levied, etc.

Some banks may initially offer teaser rates to market their credit products particularly home loans to attract customers. Teaser rate means offering an introductory rate of lower interest rate on their loans to the new customers. However, the introductory rate of lower rates of interest offered by your bank is not permanent. After the initial years of loan tenure, the initial rates are shifted from fixed to floating rates or the market-adjusted rates, which can be normal or higher than the normal rates. The rates reset after the teaser rate expires, and customers may feel the heat to see higher rates of interest applied to their home loan account. Once the interest rate is reset, the borrower will be asked to pay higher monthly installments or assuming the EMI is kept the same, when the interest rates are increased, a greater portion of EMI is adjusted towards the interest component than the principal, whereby this could increase the loan tenure.

Keep in mind when you finally decide to borrow from a particular lender, you must be aware of the rate of interest that will apply after the teaser rate period expires. Similarly, ask for information on the loan amount, loan term, and type of loan (fixed or floating) so that you can compare the information and make an informed decision. Read the below-related post.

Tips to borrowers who are thinking of transferring the existing housing loan account to another bank: A borrower should be careful about the teaser rate of interest on housing loans offered by some lenders. Check the teaser loan terms and conditions, before deciding to transfer the existing housing loan account to another bank. The teaser rate remains for a limited period which will be subsequently adjusted to a higher rate of interest. In such cases, you may incur a substantial loss on account of transferring the loan amount to another bank by way of payment of processing fee, legal fee, valuation fee, etc. again and also payment of premature closure charges levied by the previous lender.

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