Axis Bank rolls out lifetime fixed rate home loan

Axis Bank, a late entrant to home loans, has launched a lifetime fixed rate home loan at an interest rate of 11.75% for a 20-year tenure. This is the cheapest fixed rate loan available in the market and is 250 basis points lower than the fixed rate product being offered by the bank till now. Most banks charge 13-13.5% interest for fixed rate home loans.

Axis Bank is aiming to woo customers uneasy over rising interest rates. The Reserve Bank of India (RBI) has raised policy rates 12 times since March 2010. The repo rate, or the rate at which banks borrow from the central bank, has since gone up by 350 basis points.

"This is a pure fixed rate loan with no fine print. Customers would have the option of migrating to a floating rate product. However, it would come at a fee of up to 2%," said Jairam Sridharan, senior vice-president and head (consumer lending and payments) at Axis Bank. The bank runs a home loan portfolio of 20,000 crore of which a major proportion is floating rate loans.

Should borrowers bite Axis Bank's 11.75% fixed rate offer?

"I wouldn't recommend this product to any customer as we seem to have reached the peak of the high interest rate cycle," said Kartik Jhaveri, founder & director, Transcend India Private Limited. "It would be advisable for customers to pay half a per cent more and opt for a floating rate home loan product," Jhaveri added.

"Interest rates have to come down with the slowdown in global economya¦(which is) also looming over India. Locking into a fixed rate at this point is a no-no," says Suresh Sadagopan, certified financial planner, Ladder 7 Financial Advisories.

MOST CUSTOMERS PREPAY LOANS

Most customers prepay loans within 10 years. This loan comes with a 2% prepayment penalty. If a customer prepays the loan, she will end up on the losing side. Even if she locks into such a loan, she will be paying a higher interest cost," Sadagopan adds.

Banks do not charge a prepayment penalty on floating rate housing loans, especially if the borrowers pay off the dues from their own savings. Under 'Nishchint', Axis Bank will offer loans up to 85% for properties valued at up to 20 lakh and 80% for properties costing above 20 lakh, the lender said in a statement.

"The bank will charge a prepayment penalty of 2% on the outstanding amount," the statement added. Analysts are wary of the product as they are concerned about how the bank would raise resources for 20 years. Currently, no bank is marketing fixed rate home loan products aggressively.

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