What is a teaser loan? Should you take a teaser home loan in India?

Do you remember the housing loan crisis of 2008 in the United States. A whole lot of companies were accused of offering teaser loans which ultimately resulted in the housing loan crisis in the US.

In India it is a common practice to issue teaser loans, especially teaser home loans. In fact, in the last few years a number of leading institutions like State Bank of India Teaser Home Loan was offered.

What is a teaser loan?

A Teaser loan is nothing, but, a special loan that is offered for a fixed duration and could then be withdrawn. It generally offers a low interest rate in the initial years or some special offer and then gets back to the normal interest rates.

In India the State Bank of India had two Teaser home Loans including the SBI Easy Home Loan and SBI Advantage Home Loan, but, they were later withdrawn. These loans offered a lower interest rate for the first three years and then the normal rate.

The Reserve Bank of India had insisted that there be a higher provisioning for such loans as they carry a higher risk of default.

However, banks have been insisting that these loans are given based on thorough scrutiny and the risk remains just as with other loans.

A few years ago HDFC, Chairman Deepak Parekh had highlighted the risks involved with these type of loans.

Is teaser home loan a good option?

Just because a bank is offering a teaser home loan, does not mean you opt for it. Look at you own ability to pay back the loan.

While there may be a very decent teaser loan on offer, but, your cash flows may at times not permit you to take such a loan. Simply, because it's on offer you do not opt for it.

Now builders too have tie-ups with banks and financial institutions and come out with a whole lot of teaser schemes. Many of them offer to repay interest on the home loans till the project is completed.

Conclusion

Teaser loans are not bad in themselves. Banks, individuals, housing finance companies and builders should assess their own risk before putting a teaser home loan on offer.

These days there are not too many teaser loans, especially the home loans on offer. The entire home loan business has become very competitive and banks and financial institutions have become more reluctant in offering such loans.

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