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07 September 2011

Perils of being an MBA - 3

ICICI Bank has just announced a Teaser rate for home loans.
The interest rate is fixed for the first two years. After that the interest rate will be floating, the rate being linked to the PLR (Prime Lending Rate).
Very emotional ads. "Now get rid of fears of interest rate hikes", "Worry about buying home, we will worry about your interest rates", "Get home, not high interest", "Pay for your home, no need to pay high interest rate to the bank" and so on.
If I were not an MBA, I would be probably impressed with the communication and go and take this home loan offer.
But I am an MBA and hence analytical...
When I analyse this offer, I am thinking in my mind, Who are they trying to fool?
As per experts, the interest rate in India has peaked and is set to come down. Now you are offering me Fixed rate interest? When the interest rate is expected to come down? You take me for a fool?
The only one to win in this scenario is the bank. In a stable / falling interest rate scenario, the bank is offering a Fixed rate for two years. This means that, in case, the interest rate comes down, the bank can get the benefit of high interst rate.
I am curious to see the demand for this offer....