Home Loans with Teaser Scheme

                                          

Teaser rate means that the interest rate; in initial years mainly 3 years, will remain fixed and that too with low interest rate, which is below market price. After the completion of initial years, the interest rate will be converted into floating interest rate and will match up with the prevailing rates, i.e. market rate.

The teaser loan was introduced in India in January, 2009. It was the SBI bank who first took the initiative to adopt this scheme and provide home loan with teaser rate. The SBI bank was able to increase their market sharing in that year because of this scheme; due to which many other banks also adopted this scheme. This scheme gain immense popularity among loan seekers, as it provides low interest rate that too fixed for 2 or 3 years.

RBI has shown their concern about this scheme, as it is a risky scheme because many people default due to this scheme. This is because, in earlier years of the loan; the customer can easily repay the loan amount as the interest rate is low and at later stage of the loan; the person cannot repay the loan amount easily. This is so because the interest rate significantly increases in later period of the loan and it put the burden on customer monthly budget. RBI has given instructions to the banks to prevent teaser scheme, but then also; many banks now also; provide home loan with this scheme to attract customers. However, banks provide clause that they will revise the interest rate after every 1 year, so, that after completion of honeymoon period the person does not feel the burdensome.

It has been found out that; it not only increase the demand of the home loan among consumers, but also increase the no of buyers for investment in property or flat or house. The customer should give attention while availing the home loan at teaser rate because the person should always remember that interest rate is lower for just initial years after that; the customer has to repay the amount at market rate. Therefore, the person should careful while calculating the loan cost and the EMI amount. The customer should try to do prepayment of the home loan in initial years, as the interest rate in initial years is low, and customer can easily do the prepayment which minimizes the loan amount.