More lenders are joining the fixed-cum-floating interest rate home loan bandwagon. LIC Housing Finance on Friday launched such a product.

ICICI Bank had introduced such a product last month and HDFC Ltd launched one last week.

Under the new home loan product, “New Advantage 5”, LICHF is offering home loans at a fixed rate of interest for the first five years and floating rates thereafter. The floating rates will be linked to the prime lending rate prevailing at the time of the switch.

For loans up to Rs 30 lakh, LICHF will charge a fixed interest rate of 11.15 per cent in the first five years; for loans above Rs 30 lakh and less than Rs 75 lakh, 11.40 per cent; and for loans of Rs 75 lakh and up to Rs 1.5 crore, 11.65 per cent.

LICHF's product will be available till December-end 2011 with a condition that the first disbursement should be availed by the customer on or before January 15, 2012.

Lenders are launching fixed-cum-floating rate products at a time when interest rates appear to be peaking. If the interest rates start easing, say, six months down the line, the home loan borrower will not get the benefit as he will be stuck with the fixed rate home loan, said a senior banker.

Borrowers need to weigh the pros and cons of the product being offered by lenders, he added.

Interests protected

“From hereon, interest rates may rise, at the most, by 50 basis points. The interest rate structure of the new home loan product introduced by the three lenders (ICICI Bank, HDFC, and LICHF) suggests that they have adequately protected their interests,” said a public sector banker.

The RBI is of the view that fixed-cum-floating products come under the ‘teaser loan category' and, hence, lenders will have to make additional provisioning.

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