HDFC launches fixed rate scheme, others may follow suit

Mortgage giant Housing Development & Finance Corp HDFC has launched a new dual-rate scheme called 'Fixed First', under which borrowers have the option of paying a fixed rate of 10.75 per cent to 11.75 per cent for the first three or five years. Thereafter, the loan will switch automatically to HDFC's adjustable rate home loan (ARHL) product, which is a floating rate scheme.

However, the borrower will end up paying 25 to 50 basis points more than the prevailing rates on home loans.

The product is similar to ICICI Bank 's home loan scheme launched three weeks back, which offers home loans at fixed rates for the first two or three years (See: ICICI Bank unveils fixed-cum-variable interest home loans). Other lenders are expected to follow with similar schemes.

Dual-rate loans had gradually disappeared after RBI frowned on 'teaser loans' - schemes which offered borrowers a better deal in the initial years, but subsequently switched to higher floating rates.

Reports said that HDFC would not be setting aside additional capital on these loans, as the interest rates on these loans were marginally higher than floating rates, and therefore did not come under RBI's definition of teaser loans.

They dual-rate schemes also mark a partial comeback of fixed rate loans. Fixed rate loans had disappeared completely when interest rates headed south following the global financial crisis.