HDFC lauched Fixed Rate Loans
Home buyers cannot but help feel a sense of ‘déjà vu’ as leading housing finance institutions start making the combo offers on housing loans — a mix of fixed and floating rates.
A few weeks ago it was ICICI, and earlier this week, it was HDFC, which came out with a home loan product, with the interest rates fixed in the initial years of the loan, and subsequently shifting to floating rates at prevailing market rates, a few years down the line. Home loan offers were in vogue in various forms, particularly in the period following the slowdown of 2008.
HOME LOAN Bazaar
Are we seeing initial indications of a slowdown? Not necessarily, say those in home loan circles. Housing finance institutions have certainly got a pulse of the market, and especially in the South, there is no concern as of now on the demand, with the market relatively stable.
In Chennai, for instance, prices are buoyant due to various reasons, including a slowdown in supply of new stock, said a bank official.
In the markets in the West and North — Mumbai and the NCR — there is definitely a slowdown. But these home loan products cannot address those concerns. The objective is to give a level of comfort to those who have decided to go in for a purchase, the official said. The continuous increase in rates — 11 times in the last year and a half — has got the buyers worried, especially considering that further increases cannot be ruled out. “Budgets were going awry for the buyers,” said the bank official.
The fixed-floating combination gives the borrowers, particularly the young home buyers who typically choose the long-tenure loans, a degree of comfort in the critical initial years of the loan, when their borrowing capacity is stretched and they cannot afford too much elasticity in the monthly outgo.
An executive in a financial institution, citing HDFC home loan initiative as an example, pointed out that it helps remove the uncertainty of resorting to a purely floating rate in the present volatile interest rate scenario. A stable interest rate in the first few years will enable better planning. This is a product that particularly helps the young, first-time borrower.
THE YOUNG BUYER
For instance, with the average age of the home buyer coming down, a typical borrower could be in the early stage of a career, when the decision to buy the first house is made. Somebody like that borrows from multiple sources — including parents and relatives, apart from own savings — to make up the margin money. The balance would be the home loan, which will be usually up to the full eligible limit anywhere between 60-70 per cent of the salary.
It is at this stage, when the Equated Monthly Instalments are under pressure, that a borrower can ill afford uncertainty in interest rates. Products with the fixed rate in the initial years do help this market segment.
For instance, the latest ‘avatar’ of HDFC’s dual rate home loan product is a slightly tweaked version of a product that it has offered for some time, the DRHL — Dual Rate Home Loans. It is just that the duration of the fixed rate has been increased to 3 and 5 years based on market feedback.
Then depending on the size of loan, the interest outgo is fixed up to November of 2014 or 2016. So, by the time the borrowers are exposed to the market rates of interest, they are well settled in their jobs, seen some wage hikes and are better able to absorb the interest rate hikes, if there are any.
One can always keep their fingers crossed, because the general feeling is that the rates have peaked and major hikes are not expected in the near future, said an analyst.
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