Should you take a hybrid home loan?

Updated on December 14, 20183 mins read

Are hybrid home loans meant for you?

Picking the right kind of interest rate for your home loan doesn’t have to be choice between fixed or floating interest rate. For those who would like to have the best of both, hybrid loans are the perfect solution. Here is a list of commonly asked questions by our customers which can help you understand hybrid home loan better and decide if they are meant for you:

What is a hybrid home loan?

As the name suggests, hybrid home loans are a combination of floating and fixed interest rates. Under this arrangement, the bank will offer you a fixed rate for the first few years and then the prevailing floating rates will apply.

For example, on a loan tenure of 20 years, you will be paying fixed interest rate for the first 3 years and then floating rates will apply for the remaining 16 years. This floating rate will be calculated on the then outstanding principal amount and will be subject to change quarterly. 

In this case there are two loan agreements, one on the fixed rate and another on the floating interest rate part of the loan. However, there are very few banks which offer these kinds of hybrid home loans.

Should you opt for a hybrid loan?

Hybrid home loans are an ideal option for those who cannot afford fluctuations in their monthly expenses in the first few years of their home loan. This makes it ideal for young professionals who are in the beginning of their careers. A fixed EMI will help in planning finances better and allow for savings and moderate investments in other avenues.

What are the risks of taking a hybrid home loan?

Hybrid loans are just like any other regular home loans, they have no apparent risks attached to them. Rather, you can benefit from the advantages of both fixed and floating interest rates.

However, sometimes banks may push hybrid loans to compete with other teaser home loans in the market. This is why it is very important to analyse the caps and margins while considering the home loan. If both seem fairly low (by market standards), then you should consider going ahead with it.

What is the difference between a hybrid loan and a teaser loan?

In simple terms, all teaser loans are hybrid loans, but not all hybrid loans are teaser loans. So differentiating between the two can be a little tricky for a first time borrower. Several customers get confused between the two and this has proved to be misleading in several cases.

In a teaser loan the first 1 to 2 years are lent at a fixed rate which is lower than the prevailing market rate. This is followed by a high floating interest rate for the remaining tenure. Several banks offer teaser loans to lure customers. So you must study the loan scheme carefully before going for it.

How can you prepay a hybrid home loan?

Since 2012, the Reserve Bank of India and National Housing Board have banned prepayment penalty on all floating interest rate home loans.  This means that if you decide to prepay your hybrid loan during the fixed rate tenure, a prepayment penalty will be levied by the bank.

How are hybrid loans financially beneficial?

Hybrid loans combine the benefits of fixed rate and floating rate loans. This can help minimize the impact of any adverse ups and downs in the lending rates. At the same time, you can enjoy benefits that come from favorable changes in both.

Are top up loans available on hybrid home loans?

Yes! Since hybrid loans are treated as regular home loans, one can easily take a top up on them. A top up loan basically allows you to take another loan with your existing home loan. Their lending rate is usually equal to your home loan’s interest rate or 1% to 1.5% higher.

Can you transfer a hybrid home loan to a lower interest rate?

Yes! All hybrid  home loans can be switched by the borrowers as per their convenience. There is no minimum waiting period or fine (unless specified in your loan agreement). However, if you choose to switch your home loan within the fixed rate period then you will be liable to pay a prepayment penalty.

It is always advisable to keep a track of changes in your interest rate and see if switching to another plan would be more viable. Use the calculator below to see how much you can save by switching your home loan today!


Tarini

Tarini

Tarini comes with a degree in Mass Communication and Media studies. She joined SwitchME as a content writer and moved on to being an assistant product manager. Tarini is an experienced Content Strategist with a background in Product development and management. She is skilled in SEO, social media strategy and online content marketing and likes to travel when possible
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