The Housing Development Finance Corporation (HDFC) has launched an adjustable rate home loan (ARHL). Interest rates under the ARHL plan will be linked to the interest rate of HDFC's retail prime lending rate (RPLR), which will be periodically revised.
The loan is meant for those who would prefer to benefit if interest rates fall in the future, thereby reducing interest costs. However, they would have to bear the risk if interest rates increase as this will result in an increase in rates on the loans.
The interest rate on the loan will be revised every six months from the date of the first disbursement and only if there is a change in the RPLR. The current rate of the RPLR is 13.5 per cent. Loans up to Rs 5 lakh will be charged as per the RPLR while loans above Rs 5 lakh will be charged at 100 basis points above the prevailing RPLR.
More From This Section
The maximum term of the loan is fifteen years and repayment is in equated monthly instalments (EMI) on an annual rest basis. The term-adjustment method will be used for adjusting changes in the rate of interest. This implies that the (EMI) will remain the same inspite of changes in the rate of interest. When the rate decreases, the interest component in the EMI will decrease and the principal component will increase, resulting in a reduction of the term of the loan and vice versa when the interest rate increases. The term of the loan is extended or reduced based on movements in the RPLR. HDFC says that this would help the salaried customer adjust to the changes without affecting their monthly outflow.
Though HDFC's RPLR may change periodically, the rate on the customer's loan will be adjusted for any changes only every six months from the date of first disbursement.
A processing fee of eight per cent and an administrative fee of one per cent is payable on the loan. There are no prepayment charges on the ARHL. Customers will be provided with a statement of account indicating details of principal and interest paid during the year. >