Stay Immune to Rate Hikes

Pritam P Hans        Print Edition: November 2011

Axis Bank does home buyers a favour
Rising interest rates and the resulting increase in monthly outgo towards repayment of home loans is one of the biggest nightmare for home buyers. If you are looking for a home loan where you monthly instalment does not change during the entire tenure of the loan, Axis Bank has a product to offer.

Axis Bank has launched a lifetime fixed rate home loan at an interest rate of 11.75% for a 20-year tenure. This is one of the cheapest fixed rate loan available in the market.

HSBC offers fixed rate home loans at 11-14%, but the interest rates are fixed for 1-3 years only. HDFC also offers home loans with interest rates fixed at 12.25-13% for the entire tenure of the loan. Interest rates for fixed rate home loans offered by most banks are valid only for a certain period and are reset at regular intervals.

: How to cut your home loan burden

Under the new home loan product 'Nishchint', Axis Bank will provide loans up to 85% for properties valued at up to Rs 20 lakh and 80% for properties costing above Rs 20 lakh, the bank said in a statement.

"This loan scheme is useful for those seeking some visibility with respect to their interest rate outgo. Also, this option is around 2.50% cheaper than other fixed rate loans. However, it is not available for shorter durations, which is a drawback," says Jayant Pai, vice president and certified financial planner, Parag Parikh Financial Advisory Services.

The RBI has raised policy rates 12 times since March 2010. The repo rate, or the rate at which banks borrow from the central bank, has since gone up by 3.5 percentage points.

If you want to repay your loan before the tenure due to a fall in interest rates or increased cash flow, prepayment of loans under this plan will pinch your pocket. Axis Bank will charge a prepayment penalty of 2% on the outstanding amount.

The Reserve Bank of India has recommended removing prepayment penalty on floating rate housing loans. Currently, housing finance companies do not charge any prepayment penalty if the borrower is repaying the loan from his own savings.

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