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Charts & Analysis

A 5 year home loan at 5.99%

Builders are having it tough, but a certain one, BPTP in the NCR region is offering a tie up with HDFC to give home loans at 5.99%.

"BPTP…today announced a partnership with HDFC to offer home loans at just 5.99 per cent per annum. This is part of a limited period special offer, designed to make home loans affordable to consumers," the real estate firm said in a statement.

Compared to prevailing interest rates for home loans, this scheme, valid between December 18 and December 31, will offer almost 40 per cent reductions in the EMIs for the first five years, it added.

Don’t be fooled. The loan is at 11-14%, which is HDFC’s rate. The lower rate is most likely because the builder is paying the difference, since the builder can’t get a loan at any rate (banks are maxed on their real estate exposure to builders).

The “new” house is unlikely to be ready for five years, so the builder gets the money while you pay 6% a year. Given how builders operate, it is entirely likely that the money received has already been spent (it’s a book entry to move the loan from them to you), so it’s on faith that you hope the house is ready on time, or within the five year period.

Obviously if the builder defaults, the loan onus is on you – for the remaining principal even if you don’t get the house because the builder is bust. And also for the excess interest, if the fine print dictates so.

If the “teaser” rate is being financed by the builder, it makes a lot of sense to understand the financials of the builder, and figure out what you can do to avert the threat of default. If it sounds too good to be true, it probably is.