Teaser Loans – a disguised trouble …
Having a house of our own is a dream that everyone nurtures. But it is always easier said than done. A decision to go for an ownership house starts with a lot of planning and after years of plans we finally approach banks for loans. It does not end there, and then you have to look out for an appropriate property, location, pricing, interest rates on home loans and what not. So my dear friends let's keep our eyes open while taking such a vital step of our lives. This article intends to take you through the concept of teaser loans, which are nothing but a trouble in disguise.
Teaser loans are basically given to the home loan customers. The rates of interest on the loans are fixed and relatively low in the initial years (first two years). However from the third year onwards the rates turn to the higher fixed or floating interest rate. These changed interest rates are again prevailing to the then market rate. Teaser loans intend to attract more number of customers who are new home loan seekers. Teaser loan apparently makes buying home affordable but in the third year when the rate shoots up it becomes nothing but a fret to the customer and the risk of default increases for the lending bank.
Recently even RBI has raised a concern on the teaser loans. Particularly in the current scenario with huge market fluctuations on the global scale as well, teaser loans can be a matter of fret for both the customer as well as the lending banks. Teaser loans can be a trouble in case of repayment of the loan i.e. the EMI. After the interest rate is revised if it increases more than what the customer expects and can afford then the repayment element can cause a trouble.
Secondly, in the current situation where banks are having tug of war for business, they are likely to keep some information about these loans from the customer, in the fight to gain or retain the customer. So lack of transparency can worsen the matter further. That reminds me of the subprime crises and its effects on the global economy. In the similar manner many banks here too do not evaluate the repaying capacity of their client. In case of teaser loans banks many a times consider the initial EMI and evaluate their customers' creditworthiness on that basis, which they ideally should do based on the normal rates. Biggest threat to the lending banks in case of teaser loans is that if the floating interest rates soot up and is unaffordable for the customer then the customer can default their payments of EMI. Recently even SBI the biggest bank in terms of volume has rejected an idea of launching teaser loans for their home loan customers.
Having said that, friends all the best to you for the purchase of your new house, but please have a safe buy. Make sure you know your product (home loan) completely. Do a study of the bank that you are approaching for finance. Because we do not want to buy a flat, we intend to buy a home.
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