1. What exactly is a “teaser” mortgage?
Similar to the giant sopper we see running around on a soggy cricket field, teaser home loans are typically placed into the lending market to fulfill a specific purpose. They exist to absorb surplus liquidity that poses a risk of lulling the lending market into inactivity. When the economy requires a spark to keep the lending market moving forward, these loans have historically been turned to.
Teaser mortgages include enticing interest rates and offers of discounts during the initial stage of the loan. They revert to the current interest rates after a predetermined amount of time.
2. What do they have going for them?
a. The loan rates are typically 2 percentage points or more below the generally accepted market interest rate.
b. They are often dual loan rate arrangements with an initial fixed period of time (typically 1 to 5 years) at a set interest rate and the opportunity to switch to floating rates at the conclusion of the predetermined period.
c. With property values falling and ideas like affordable housing emerging, these financing programs will offer first-time homebuyers an economically sound choice.
Teaser home loan plans are only one of many such loan schemes that are beautifully packaged and positioned to grab a loan applicant’s attention right away. The following advice will assist you in investigating and assessing these possibilities that occasionally appear on the market.
3. How can I pick the ideal loan?
Compare the overall loan cost to the constraints at hand. The initial differences between the current teaser home loan programs range from 0.25 to 0.3% at teaser rates. To calculate the overall loan cost at the current teaser rates, one must also take into account other expenses such as processing fees, service fees, etc. One cannot accurately predict how much more money will be spent on interest until the variable rates are in effect.
4. Do I choose, a private lender or a PSU?
In the event of a PSU, you might not get to select; more frequently, the bank might! PSUs typically take less risk than a private lender. When it comes to eligibility, there are some pretty tight rules. Everything is dependent on your capacity to pay back loans.
5. Teaser home loan and other eligibility
Due to the fact that this offer has a reduced interest rate, banks and PSUs in particular are often more cautious regarding the qualifying requirements.
A. Is the property’s age important?
A house that is older, requires larger down payments, or possibly rejection if it has changed owners too frequently, etc. In general, banks cover 85% of the project costs, although older homes can further reduce this.
If the home is older, private lenders may be easier to work with. based on their prior performance and more exposure to and experience with handling similar situations.
B. Should my property be pre-approved?
A property is pre-approved when a bank has previously confirmed the title documents for it and that builder. This expedites the loan sanction process for a pre-approved property, and PSUs are picky about this element.
C. Does it matter where and how long I work?
Employment history is important. In addition to the qualifications of your organization, your employment history can be used to gauge your ability to repay loans. You must work for your existing business for a minimum of three years to qualify for a loan from several PSU banks.
D. What function does a credit report serve?
The bank needs to know this in order to evaluate your history of on-time loan and credit card payments. You can now get access to your credit report according to a recent RBI directive. So be sure to obtain a copy and evaluate your performance.
6. How can I be certain that the bank won’t later use sharp rises in floating rates?
Finding out the bank’s history with these problems is quite helpful. You’ll notice a trend in interest rate increases, and the RBI has also done studies to determine this pattern across various banks.
Also keep in mind that after the teaser offer has ended, you can always choose to move your house loan to a new provider or haggle with your existing loan provider for a lower interest rate. If the new loan rates are more than 2% to 3% less expensive, it can be worthwhile to switch even if there is a prepayment penalty.
Don’t forget to ask your bank:
What is the total cost of my loan?
b. When do the increasing loan rates start to apply? Will I receive notice? – Confirm the interest reset provision in your loan contract.
c. Can I transfer my loan at any time throughout the loan term or switch to a new loan scheme you are offering? Does it cost anything? (Check your loan agreement for the prepayment penalty clause.)
d. When will the real transfer of ownership occur following the repayment of the?
I’d want a copy of the amortization chart, please. This will demonstrate how you’ll pay back your EMI. In the first few years, you’ll start off paying more in interest than in principal. Therefore, a sizable portion of the principal will be subject to the new interest rates when they begin to apply. This is crucial because greater loan amounts may result in higher variable interest rates!
As previously said, teaser house loans were added to the lending stream to give the lending industry the much-needed boost. After achieving that with its launch, it is currently being gradually removed from the system, and in the upcoming quarter, loan interest rates are expected to increase. The recently announced base rate structure, which is anticipated to go into effect on April 1, will serve as a lead-in to any potential interest rate increases. This merely means that they might be equal to or just a little bit higher than the base rate, not that there won’t be any more teaser home loan deals with lower rates!
