HDFC Bank unveils fixed rate loans; experts advice caution

After completion of fixed rate period,the loan will switch to HDFCs ARHL product.

Closely following ICICI Banks move that offered a fixed home loan rate for the initial 1-2 years of the loan tenure,HDFC announced its Fixed First home loan option on Monday. HDFC has,however,extended the deal by offering a fixed rate for the first three or five years (depending on the two offerings) after which the loan will automatically switch to HDFCs Adjustable Rate Home Loan (ARHL) product.

The product which has the tenets of a teaser loan as it offers to lock the interest rate for three and five years respectively,providing a net against any further rise in the rates in the period,does not have the discount rate offering that teaser loans possess.

The fixed rates are being offered either at par with the ongoing floating rate loans of HDFC Bank or at a premium to it.

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HDFC has come out with two options one with a fixed interest rate for three years and other with a fixed rate for first five years and these are available along with the existing home loan products.

This option is for customers seeking to lock in their home loan interest rates and not take risk on interest rates moving up in the initial years, said HDFC in its statement.

After the completion of the fixed rate period,the loan will switch to HDFCs ARHL product,linked to HDFCs RPLR.

The rate of interest applicable during the ARHL period of the loan shall depend on the RPLR at the time of the switch of the loan to ARHL.

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While the product has been launched after a series of rate hikes by RBI that resulted in home loan rates going up by 2-3 percentage points over the last 17 months,experts say that the interest rate hikes are nearing their peak and a lock-in for 3-5 years at the current rates would not be a good idea.

While five year lock-in is not at all recommended,home buyers should stay away from three year lock-in too as rates are nearing their peak. If you lock-in then you would miss out on any fall in the interest rates which may happen beginning next 6-12 months, said Surya Bhatia,a Delhi-based financial planner.