Every day, there are new changes and modifications being introduced on the banking front, and loan repayment constitutes a big part. Recently, some banks have offered dual rate home loans. In this system, you will have to pay a fixed interest rate for the first few years and then pay the loan at floating rates. The number of years and the rate of fixed interest depend on the amount of loan you take. The option is available with 1-5 years of fixed rates. Most banks ask for 10.75% to 11.75% of fixed rates for those years.
Should you or shouldn’t you?
The total concept depends on the current market situation. The interest rate amount changes with time and that makes all the difference when you are availing a loan. It has been observed that many borrowers felt more comfortable with the dual rate system in the past. The fixed rates are higher than normal rates but, being fixed, it offered them a chance to devise a financial plan for repayment. However, when the interest rates are falling then it is not a good idea to settle for a higher fixed rate. Everything depends on the current amount of interest rates that the banks are quoting.
These are not teaser rates
The concept of teaser rate is very simple. It is a system where a borrower needs to pay lower interest rates than normal interest rates for the same kind of products. They can pay the lower rates for some months or even a year. The new dual rate scheme is not the same as the teaser rate scheme. This scheme does not offer you any fixed lower rate than the normal floating rates. You may just pay higher than normal rates.
What to do
Your decision will depend on the current interest rates of the product you have taken. If the normal interest rates are higher than the fixed rates, it will be very beneficial for you. If the normal rate is lower, do not opt for the scheme. As interest rates are currently rising, you may opt for the dual rate scheme.