Teaser Loans' Day of Reckoning

It is a little more than three years that banks started coming up with step-up home loans or "teaser home loans" where you paid lower equated monthly instalments (EMIs) in the first 2-3 years--though progressively increasing--with the rates being re-set at the prevailing market rates after the period is over. Thanks to the attractive pricing, people made a beeline for this kind of home loan. Now that this period is getting over in early 2012, lenders and borrowers are waking up to what it would mean to pay at the market rates. For borrowers, there is a sharp spike in EMIs or tenures depending on what the age of the borrower is. If you are young, your loan tenure would be increased but if you are not lucky, get ready to pay higher EMIs, in some cases as much as 20 per cent more. That's a lot in these times of downturn. With existing market rates being lower than the rates for the teaser loan rates after resetting, it makes sense for people to migrate to another borrower, though the difference in rates is not huge and there would be costs of migration such as for processing. Not surprisingly, loan providers have started offering fresh rates to "teaser loan" customers. Right now, only two major providers I know of have done this. However, I do expect more to follow suit. This is clearly a great case study of unfathomable long-term consequences of "smart customer acquisition moves". But, to be fair, global financial turmoil of the past four years have played havoc with everyone's calculations.