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Friday, August 19, 2011

ICICI teases with fixed rate home loans

Mumbai: Amidst a rising interest rate scenario, where home loan rates have gone up between 2-3 percentage points, ICICI Bank is wooing customers by offering them an option of a fixed rate for either the first one year or two years.

Subsequently, however, the borrower will have to switch to a floating rate linked to the bank’s base rate.

Although similar to the ‘teaser’ scheme that State Bank of India (SBI) had earlier launched, the difference in the ICICI Bank’s product is that the fixed coupon is linked to the base rate and in line with the current floating rate that customers would otherwise pay.

In SBI’s case, the fixed rate offered in the initial years of the loan was about 100 basis points lower than the floating rate prevalent at the time. The bank was compelled to discontinue the scheme after offering it for a couple of years, because the banking regulator frowned on it.

The bank is offering a one year fixed rate at the ongoing floating rate of 10.5 per cent for loans up to Rs 25 lakh, 11 per cent for an amount between Rs 25 lakh and Rs 75 lakh and 11.5 per cent for over Rs 75 lakh. If a customer wants a fixed rate for the first two years, the cost will be higher by 25 basis points for every slab.

The conversion to floating rate after the one or two year fixed period will be at a base rate plus margin decided by the bank at the time of sanction of the loan. “Floating rate from the second year or third year (for the respective schemes) will be linked to the ICICI Bank Base Rate (Ibase) plus margin decided at the time of sanction of the loan,” said the bank in a statement.

A bank official confirmed that the base rate plus margin will be same as applicable for a normal customer on that given day.

“Fixed interest rates will shield customers from frequent changes in home loan interest rates and protect them from any rise in interest rates over the next one year or two years,” the bank said.

Experts, too, agreed with the bank’s point and said that, it would be a good option for the prospective home buyers as it will safeguard them against a further rate hike which looks likely given the persistency of high inflation levels. Delhi-based certified financial planner, Surya Bhatia, said, “It does not look like a teaser loan and it gives the short-term benefit over any rate hike in the near future. However, the terms and conditions for conversion from fixed to floating rate needs to be seen.”

Source: Financial Express


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