BOB, HDFC plan switch option for home loans

Some large banks and housing finance companies still do not have an option for customers to switch from a floating rate home loan to a fixed rate one in a potentially hardening interest rate scenario.

Bank of Baroda (BOB) and the housing major, Housing Development Finance Corporation (HDFC) are two cases in point; both insist they will be introducing the option shortly.

Bank of Baroda is planning to introduce the option in 1-2 weeks time. The bank has decided to introduce the same based on responses from customers.

"If we do not introduce the conversion option we may end up losing customers who will opt for some other bank. Many of our customers are demanding that we introduce an option to convert from floating to fixed," explained a bank official.

HDFC too also does not have a switch over option. The housing finance company says it is working on the modalities of introducing the option. "Three-fourth of our customers still prefer floating rate home loans," said the HDFC spokesperson.

Although there have been some customers seeking a conversion but they have been convinced that there is no need to convert since the fixed loan rate is 1.00-1.50 per cent higher than the floating rate option. Interestingly, HDFC is about the only institution that offers a fixed rate loan without a reset/ 'force majeure' clause.

The force majeure clause is an option found in most loan documents which if invoked gives the lender the right to raise the interest rate under certain circumstances such as extreme volatility in the money markets.

About a month ago, State Bank of India introduced the switch over option to shift from floating to fixed given the chance of rising interest rates.

It levies a charge (inclusive of processing fees) of 2.75 per cent on the total outstanding. Punjab National Bank charges a fee of 2 per cent while Union Bank of India increased its fee to 2.50 per cent from 1.00 per cent charged earlier.