In India, mixed (fixed cum floating) interest rate housing loans were originally characterized as so called Teaser Loans because of their ability to attract borrowers with a lower interest rate in the initial years. This was a fixed interest rate, the floating interest rates would come into play gradually.
RBI (Reserve Bank of India) and subsequently NHB (National Housing Bank) in the year 2010, asked
HFC's (Housing finance companies ) and Banks to make a higher provisioning of 2% for these type loans, with the standard provisioning equivalent to 0.4% of the loan value to cover the risk of a default.
NHB's opinion is that the new range of fixed cum floating interest rate products are different from teaser loans launched earlier.
According to Mr. R. V. Verma, CMD (Chairman and Managing Director ) NHB ''The main difference is that the fixed interest rate charged in the first few years is comparable with the prevalent market rate. The fixed interest rates in the initial years are market-related rates and are not artificially low. Artificially low interest rates in the initial years was the main attraction of teaser products. Consequently, the risks of loans turning bad are lower as interest rates will not vary much after the end of the fixed interest rate duration of the loan"
RBI (Reserve Bank of India) and subsequently NHB (National Housing Bank) in the year 2010, asked
HFC's (Housing finance companies ) and Banks to make a higher provisioning of 2% for these type loans, with the standard provisioning equivalent to 0.4% of the loan value to cover the risk of a default.
NHB's opinion is that the new range of fixed cum floating interest rate products are different from teaser loans launched earlier.
According to Mr. R. V. Verma, CMD (Chairman and Managing Director ) NHB ''The main difference is that the fixed interest rate charged in the first few years is comparable with the prevalent market rate. The fixed interest rates in the initial years are market-related rates and are not artificially low. Artificially low interest rates in the initial years was the main attraction of teaser products. Consequently, the risks of loans turning bad are lower as interest rates will not vary much after the end of the fixed interest rate duration of the loan"
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