In order to encourage demand for home loans from customers, banks started offering what we call teaser rates.' These rates are typically introduced at a lower interest rate in the initial year and later increased. Much to the dismay of the Reserve Bank of India (RBI), banks continued to charge these rates to customers as they witnessed an increase in demand through teaser rates. These rates typically start at 8%-8.5% for the first year and then about 9% from the second year onwards.
Are teaser rates good?
Teaser rates are not good if you are not aware of the implications of these rates. These rates can mislead the customers as the low interest rate is only applicable in the first year.
So, although for the first year, you might enjoy a low home loan interest rates but after that the rate changes to the prevailing rate of interest in the market.
The trouble with such type of rates is that it is being used by banks to tempt people to get loans without educating them on what the impact of theseloans will be after a year or two. A typical middle class Indian family prepares the family budget in such a way that all expenses are barely adjusted and planned beforehand. So, if they will be expected to pay a higherEMI from the second year onwards, it will impact their budget directly.
If you are looking for a home loan in today's market, it is advisable that you get the estimate from your lender about how much will be your EMI on an average across the life of the loan.
Ask the lender what your EMI will be from the second year onwards and figure out if it still fits your budget.