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After ICICI Bank launched fixed rate teaser loan few weeks back, HDFC has come out with a similar offer to attract more borrowers. India's largest home loan company, HDFC launched the 'Fixed First' scheme under which interest rate for home loans will be fixed for three or five years and thereafter will attract floating rates.

The new scheme will provide an option to home loan seekers to borrow long-term funds at fixed rate of interest ranging from 10.75 per cent to 11.50 per cent for three or five years. On expiry of the fixed term, the loan will be switched to floating rate. The customer will have to apply before 31 December, 2011 to avail this offer.

Loans of up to Rs 30 lakh will have a fixed interest rate of 10.75 per cent for three years period and 11.25 per cent for five years. Similarly, loans in the range of Rs 30 lakh to Rs 75 lakh will have fixed interest rates of 11.25 per cent for three years period and 11.50 per cent for first five years. Loans of over Rs 75 lakh will attract an interest rate of 11.75 per cent for 3 and 5 years.

Last month, ICICI Bank had launched a similar fixed home loan schemes under which the rate of interest was fixed for one or two years and floating rate thereafter.

We do not recommend getting into fixed home loans right now. RBI may increase the rate by another 25 basis point but after that the interest rates should come down. An investor may get stuck with a high fixed rate loan for 5 years when the interest rates are expected to come down.

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