HDFC launches fixed rate home loan scheme, others to follow

Moneycontrol Bureau

Largest housing finance company HDFC on Monday launched a new fixed rate home loan scheme christened as 'fixed first'. This product is on similar lines with ICICI Bank 's home loan product, launched three weeks back, that had offered the benefits of repaying loan in the first one to two years at fixed rates in the range of 10.50-11.75% depending on loan amount.

Home loan borrowers can avail loan at a fixed rate for the initial three or five years under the new scheme. Thereafter, the loan will switch automatically to HDFC’s adjustable rate home loan (ARHL) product, which is an existing floating rate scheme.

The new scheme rates:

Loan Amount (Rs in Lakh)	3 Year Rate of Interest (%)	5 Year Rate of Interest (%)
Up to 30	10.75	11.25
30.01 – 75	11.25	11.50
Over 75	11.75	11.75

“This  option  is  in  addition  to all the existing home loan options being offered  by  HDFC.   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 a release issued by the mortgage lender.

Meanwhile, two consecutive launches of fresh home loan products have prompted other industry players to join the bandwagan.

“We will certainly review our product lines. Our Advantage – 5 was a super hit scheme. But we had to discontinue it complying with the regulator. The scheme was of teaser nature,” V K Sharma, chief executive, LIC Housing Finance told Moneycontrol.com.

Advantage 5 had offered fixed rate of interest at 9.25% for 5 years and thereafter on floating basis.

HDFC's new scheme rates are higher than the existing rates offered by ARHL. The current floating rates are as follows:  for loans up to  30  lakh is  10.75%, for loans Rs 30 - 75 lakh it is 11%  and for loans above  Rs 75 lakh it is 11.50 %.  All are based on the current  retail prime lending rate (RPLR). HDFC's RPLR is at 16.50%.

Interestingly, HDFC's new scheme gives some discount as compared to its existing fixed rate scheme that offers rates in the range of 12.25-12.75% to be frozen for next 20 years.

"RBI might take a call on all these fixed rate schemes. It is teaser rate only in disguise. Some lenders are offering it to customers very tactfully," said a top executive from an institution, engaged into lending business.

Customers can apply for HDFC's new scheme before October 31 and avail of the first disbursement on or before November 30, 2011.

According to a market consensus, the Reserve Bank of India has almost reached the end of rate hike cycle. In next one or two quarters, it might start slashing rates gradually. Following this, lenders too will have to pass on the benefit to their customers. 

Sensing this, most of the lenders now want to fix current high rates for longer terms. Hence, they are keen on bring such fixed rate products, said market watchers.