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More players offer variable rate loans

Larissa Fernand

ICICI now wants to join the ranks of HSBC, HDFC and BoB Housing Finance in offering a variable or adjustable housing loan product. BoB Housing Finance has been the latest entrant while the other two players introduced their loans last year.

Variable interest rate loans mean that the rate of interest will keep fluctuating. Accordingly, the loan will either become more costlier to the customer or cheaper, depending on which way interest rates are headed.

If you don't have the stomach for risk, this is one loan you should never opt for. Sure, if interest rates go down, you have the benefit of a lower rate. If they rise, you had better be in a position to dole out a higher EMI. Currently, that does not seem to a posibility since all indications seem to point in the direction of lower interest rates or at least interest rates remaining stable.

BoB Housing Finance uses the company's own index system as the base rate. HSBC uses the banks's prime lending rate (PLR) as a peg while HDFC uses the retail prime lending rate (RPLR) as a base.

However, there is a difference in the way each work. BoB Housing Finance will change the rate once a year, at the start of the calendar year. Depending on whether or not the rate has increased or decreased, the EMI will accordingly rise or fall. Ditto in the case of a change in HSBC's rate where the EMI will fluctuate.

In the case of HDFC, the EMI remains constant but the repayment tenure will accordingly increase or decrease depending on the rise or fall of the base rate.

Consequently, if interest rates fall and you have to pay less, then your EMI will go down if your loan is with HSBC and BoB Housing Finance. If your loan is with HDFC, the EMI does not drop, but the number of months that you have to keep paying will reduce.

Of course, all three players are simultaneously offering fixed rate loans. And you have the option of switching repayment methods with HSBC. Not so in other cases, where once you have taken it you are stuck with it.

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