HDFC offers dual rate loans

HDFC Ltd today offered a fixed-rate option of three and five years on its home loans, sparking what promises to be another gripping battle in the highly-competitive housing finance business just when the real estate markets show signs of stirring to life. The fixed-rate option of three and five years appears to be targeted at ICICI Bank which caught the industry by surprise last month when it gave borrowers the choice of opting for a fixed rate for either one or two years. The dual rate home loans reignited memories of the teaser rate home loans that were pioneered by the State Bank of India in February 2009, which had offered a lowball rate of just 8 per cent in the first year before flaring to a market rate in the subsequent years. The SBI has indicated that it does not have any immediate plans to revive the dual rate home loans. Neither HDFC nor ICICI Bank is trying to entice the home loan borrower with a ridiculously depressed rate in the initial years. HDFC is offering a rate of 10.75 per cent on loans up to Rs 30 lakh under the three-year fixed-rate option and 11.25 per cent under the five-year option. It is also offering 11.25 per cent under the three-year option for loans between Rs 30.01 lakh and Rs 75 lakh, which goes up to 11.50 per cent under the five-year option. Loans above Rs 75 lakh will carry a uniform fixed rate of 11.75 per cent under both the options. After the initial period, the loans will switch automatically to HDFC’s adjustable rate home loan product that is linked to the mortgage financier’s retail prime lending rate. “This option is for customers seeking to lock in their home loan interest rates and not take a risk on interest rates moving up in the initial years,” HDFC said in a statement. Customers will have to apply on or before October 31 this year to be eligible for the special offer. The first loan disbursement must take place on or before November 30 — giving a small window of opportunity for home loan seekers. The HDFC offer appears to be an improvement on the overture made by ICICI Bank, which is offering a rate of 10.75 per cent on loans up to Rs 25 lakh under its two-year fixed rate option. HDFC also scores over the country’s second-largest bank by offering 11.25 per cent for loans of Rs 30.01 to Rs 75 lakh for three years against ICICI’s two years for loans between Rs 25 lakh and Rs 75 lakh. However, ICICI is offering 10.5 per cent for a one-year fixed rate home loan of up to Rs 25 lakh. It is also offering 11 per cent under the same tenure window for loans between Rs 25 lakh and Rs 75 lakh, and 11.50 per cent for amounts above Rs 75 lakh. Under the three-year option, HDFC says the fixed rate will be available up to November 30, 2014. Under the five-year option, the fixed rate will be available up to November 30, 2016.