All You Need To Know About Teaser Loan
What if you are offered a lower interest rate during initial years of home buying and later on moved to market rates? Wouldn't home buying be a financially more pleasing experience with this scheme? Teaser home loan schemes offer various such benefits and perks for home buyers. PropGuide takes you through the nitty gritty.
What is teaser loan?
Teaser loan can be better defined as an adjustable-rate mortgage in which homebuyers are offered loans at cheaper rates in the first two to three years. The standard rates are applied thereafter. Teaser loans can also be withdrawn after the initial term. The lower rate is an introductory offer which can be offered at a zero per cent interest rate. The concept of teaser loan was launched to attract young buyers who have low monthly income but can pay usual interest rates as the income rises in later years.
How does it benefit homebuyers?
For borrowers, this can be a win-win situation as it can be a good start for a long term mortgage like home loans. Since home loans are serious commitments, getting a loan sanctioned at a discount makes a lot of sense. However, home buyers should also factor in their own capability to pay back the amount. For instance, what if your cash flows stop in between? Though the schemes are appealing and many developers are tying up with banks for such offers, do not go for it without evaluating.
The guidelines
While the teaser loan scheme got popular in 2010, the Reserve Bank of India (RBI) laid out certain provisions to ensure fairness. Since the RBI sensed the housing bubble and crumbling financial system in 2008, guidelines were issued to banks for increasing the standard provisioning from 0.40 per cent to 2 per cent, five times the initial amount. Many banks withdrew their teaser loan schemes after these guidelines came into force.
However, recently State Bank of India and ICICI Bank relaunched similar schemes by tweaking terms and conditions.
Buyers RBI propguide Hybrid Loans Teaser Loan