Real estate prices continue to climb and to add to problems of home loan borrowers, Reserve Bank of India has introduced some new norms and policies. These policies are bound to have an impact on the home loan borrowers and teaser loans are one of the areas where changes have been incorporated. Teaser loans were pioneered and promoted by State bank of India as low cost loans and these loans are offered at low fixed interest rates for the initial 2 to 3 years. After this initial period the interest rates go back to the normal floating rates.
The Reserve Bank of India has had serious reservations about teaser loans since it can be risky to the banks with borrowers being unable to pay the increased EMIs in the long run. For this purpose RBI increased standard asset provision on the teaser loans from 0.4% to 2%. Currently borrowers are able to get loans at low rates of 8% for fixed number of initial years following which the rates shoot up. The increased provisioning means reduced income for the banks.
Some banks that offer teaser loans include State Bank of India, ICICI Bank, Corporation Bank and Punjab National Bank. Borrowers opting for teaser loans should understand that the rates are low only for the initial years and they are bound to increase. The decision to buy a property should be taken only if the borrower likes the property and is able to pay increased EMI in the future. Base Interest Rates – Safeguarding interests of old and new borrowers.
As per the new guidelines given by RBI in April 2010 the lending rates will be fixed at base rate along with the borrower specific charges. The base rate will be fixed as per the cost of funds and so changes in interest rates will be passed to new as well as old customers. Banks will be allowed to experiment with the rates before the system is adopted from December 2010. Most banks are expected to determine their base rates in the range of 8 to 9%.
The purpose of this change is to allow increased transparency in rates of lending. Volatility in the market will also be reduced due to the base rate policy and there will be increased competitiveness among banks. Borrowers will be able to choose the bank that can best meet their requirements. Protecting interests of home loan borrowers through lowered loan to value ratio.
To exercise greater control over home financing sector in the country, Reserve Bank of India has made home buying an expensive proposition particularly for those who depend completely on bank loan. As per the new provision home buyers will now be able to get loan to the extent of 80% of the house value from the bank. The buyer will have to arrange the remaining 20% of the house value. Some banks were allowing loans of up to 90% of the house value and RBI introduced this new policy to curb this problem.
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