HDFC's fixed cum floating rate home loans

Last week, Bachhat carried a post on ICICI’s newly launched fixed cum floating rate home loans and we also compared it with HDFC and SBI’s existing floating rate home loans.   

Read: ICICI’s Fixed cum Floating Rate Home Loans

Now earlier this week, HDFC has also introduced fixed cum floating rate home loan named “Fixed First”.  It is interesting to notice that many banks had discontinued fixed rate home loans when interest rates started to fall in 2008 and are now encouraging borrowers to take loans with fixed rates for certain tenure citing further rise in interest rates.

About HDFC’s Fixed First:

In HDFC’s Fixed First, the borrower has an option to choose the fixed rate tenure between 3 years or 5 years.  After the chosen period of 3 or 5 years, the loan shall be converted to regular floating rate home loan.  In ICICI’s offering, the option for fixed rate tenure was either 1 year or 2 years.  Thus in Fixed First, the rates shall remain constant for longer tenure as compared to ICICI’s offering. 

The table below gives comparison between HDFC’s and ICICI’s offering:

Loan Amount	HDFC		ICICI
	First 3 Years	First 5 Years	First 1 Year	First 2 Years
Up to Rs 25 Lakhs	10.75%	11.25%	10.50%	10.75%
> Rs. 25.01 Lakhs to Rs. 30 Lakhs	10.75%	11.25%	11.00%	11.25%
> Rs. 30 Lakhs to Rs. 75 Lakhs	11.25%	11.50%	11.00%	11.25%
> Rs. 75 Lakhs	11.75%	11.75%	11.50%	11.75%

Whether one should opt for fixed cum floating rate home loans at this point of time?

As Bachhat had noted in its earlier post on ICICI’s offering, in fixed rate loans, the benefits to borrowers and banks are exactly opposite.   It makes sense for banks to disburse more fixed rate loans when interest rates are at or are nearing peak and are projected to fall in the future.  However, borrowers benefit from fixed rate home loans if interest rates increases after they avail fixed rate loans.

Keeping this in mind, let us check the interest rate (Repo) movement since end of October 2005.

As can be seen from the interest rate chart above, we are almost nearing the peak rate in last six years.  Further, the last time the interest rates peaked, it did not last long and due to occurrence of various global events at that point of time, the rates began to fall.

From the above graph, we can deduce that interest rates are reaching their peak and may not remain high for elongated period and shall fall down.  Whether it shall happen immediately or after 6 months or 1 year is anybody’s guess.  However whatever may be the scenario, it does not makes much sense to tie oneself down to fixed interest rates for long period.

Whether shall you opt for fixed cum floating rate loans at this point of time?  Do let us know your views and suggestions in the comment section below.