Banks always implement new strategies to attract more and more people to take loans. The dual rate loan is one of those rather new schemes that can convince some people to take loans in this high interest rate scenario. Dual rate loans are arranged in a way that a borrower needs to pay a fixed interest rate for the first few years and then pay a floating rate for the remaining period of the loan. The dual rate home loans are offered by many banks these days. Let us learn more about them.
1. Dual rate home loans
When someone takes a dual rate home loan from a bank, he has to pay a fixed interest rate for the first few years. Most of the banks ask for a fixed interest rate of 11.5% for first 3 years. The rate can be fixed at 10.5% too if the loan amount is higher. The borrower then needs to pay the floating rates after the end of three years. This system may help borrowers at a time when interest rates start falling.
2. Dependency on market rate
The fixed rates that a borrower needs to pay for the first few years, are actually quite high. The interest rate in a given market scenario for the same kind of loans can actually be lesser than the fixed rate. In that case, it is not advisable to go for a dual rate home loan. However, if the market rates for same kind of loans are higher, or increasing, then the dual rate home loan can be a good choice.
3. The current market rate
The RBI had increased interest rates in order to rein in inflation. Financial experts are saying that the interest rates have touched towering heights and may stay elevated for some time. This is actually the right time for people to take a dual rate home loan so that the fixed rate of the loan for the initial years is locked in at a level irrespective of rising market rates.
4. Should you go for it?
As one does not know when interest rates would start coming down, dual rate home loans can prove to be a good option. It will allow you to pay an interest rate that is lower than the market rate for home loans. You can also work on a plan for repayment of the loan.