ICICI Bank launched a 'fixed interest rate' product last week, although the rates are "fixed" only for an initial period of one and two years.
Under the one-year fixed rate home loan, you can obtain a loan of up to Rs 25 lakh at a rate of 10.50%. This rate will be 11% for a loan amount between Rs 25 lakh and Rs 75 lakh, while loans of over Rs 75 lakh will attract an interest of 11.5%. From the second-year onwards, you will migrate to a floating rate linked to the ICICI Bank Base Rate (IBase) plus the margin decided at the time of sanctioning the loan.
Under the two-year fixed-rate scheme, loans of up to Rs 25 lakh will carry an interest rate of 10.75%. The rate will be 11.25% for amounts up to Rs 75 lakh and 11.75% for loans more than Rs 75 lakh. Again, from the third year, the rate will be pegged at the IBase plus margin.
According to the bank, the fixed rates will "shield customers from frequent changes in home loan interest rates and protect them from any rise in interest rates over the next one year or two years". If you are one of those who feel the overall economic and liquidity scenario can only worsen from here, and consequently the rates will continue their northward march, then you can consider other aspects of the scheme.
But, many bankers believe the RBI is probably done with rate hikes, save one or two more in September. If the view is proven correct, the upward movement of rates will halt at the current level before starting to slide down gradually. Given this possibility, you shouldn't go gaga over the offer of a fixed rate, especially for the two years.
Conversely, if the rates indeed continue to go up for a longer period than anticipated, this product could turn out to be a teaser rate scheme or loans that come with an interest rate lower than the prevailing lending rates of the bank, which is not viewed favourably by the Reserve Bank of India. If you are unable to service the upwardly revised EMIs once market-linked rates become effective after one or two years, you could land yourself in soup.
Upside: If you are convinced the interest rates would continue to rise and want to lock the rates for the initial period, you may find the scheme attractive.
Downside: If the rates start falling shortly after your loan is approved, you could miss out on the opportunity of benefiting from the softening rate scenario.
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