The Hindu Business Line : ABN AMRO's All Smiles SuperSaver Package

Home loans just keep getting more attractive and there is a whole range of products to choose from. ABN AMRO's All Smiles SuperSaver Package, for instance, allows you to gradually step up your interest payments until you reach the prevailing floating rate offered by the bank. But you would have to act fast, as the scheme is available only till May 31, 2004.

The product

SuperSaver loans are given for a maximum of Rs 1 crore and can be repaid over a maximum of 20 years. The loan repayments are structured attractively, to lighten your burden in the initial two years. You pay an effective interest of 6 per cent in the first year and 6.5 per cent in the second.

From the third year on, you will have to pay the prevailing floating interest ratewhich is 7.25 per cent at present.

The EMI (equated monthly instalment) per lakh for a 20-year loan period works out to Rs 717 in the first year and Rs 745 during the second.

Prepayment on the loan within the first five years is allowed to the extent of 25 per cent of the opening loan balance per year without a charge.

Any amount over and above that would attract a 2 per cent charge. Any prepayment made after five years is not subject to prepayment charge.

Take a floater?

Is there a catch in the lower interest rate in the initial years? That you have to migrate to a floating rate at the third year is one. When you choose to take a floating rate loan, you would assume the risk of an upward spike in interest rates.

If interest rates do firm up over the next couple of years, you could, from the third year on, face a higher EMI than you originally factored into your calculations.

In contrast, with a fixed rate loan you could lock onto the prevailing rates and sleep easy for the rest of the tenure.

Competitive features

But if you have made up your mind to take a floating rate loan, ABN AMRO's floater comes at competitive terms.

The bank's floating rate loan is pegged to a special home loan prime lending rate ( rather than the usual retail prime lending rate). This ensures competitive rates and revisions at six-monthly intervals.

The bank claims that as it is tailor-made for the home loan segment, the rates will not be reset to a level too high, lest the product should lose its competitiveness.

Besides, you are also allowed to convert the floating rate loan to a fixed rate one at a flat charge of Rs 2,500 after two years.

There are `step-up' EMI plans of other banks that offer demand EMI payments in the initial years, followed by gradual increases in payments.

While you can be certain of your EMI outgo in these schemes, you will find that almost the entire portion of the EMI payments in the initial years goes towards the interest.

However, with the SuperSaver loan, you will find that your EMI in the initial years comprises both a principal and an interest component.

This structuring lowers not only your EMI payments but also your interest costs.

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