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Home Loan - Whether to Choose Fixed
or Floating?
Choosing the right kind of interest
rate can be extremely baffling while shopping
for a home loan. Only a single question comes into mind -
Should I choose 'fixed' or 'floating' rates of interest?
Interest
rates on home loans have been fluctuating since
the last 6 years. For that reason, a consumer cannot be sure
of any trend to narrow down on the best loan. In March 2000,
the rate was about 14% which started falling steeply.
The interest rate on home
loans in India fell to 7% and it soared to a high of around
10% (floating rate of interest) in January 2007. It is believed
to be the most dramatic hike. Floating rate of interest, as
it name signifies, can be either increased or decreased, which
is clearly mentioned in a home loan agreement. On the other
hand, if a consumer goes by the route of fixed rate of interest,
he could be paying a huge premium today.
A consumer should analyze the past market
trends to have an idea about how it has moved and consider
the costs and benefits of changing the decision. A well informed
customer always makes right choices.
Floating interest rate on home loans can
be changed by the bank. This is why it makes sense to choose
'transparent floating' interest on home loans. This basically
means that the interest rates will have a direct relation
with the general interest rate. If one will go up, then the
other will also increase and vice versa.
Unlike floating interest rates, a true-blue
'fixed' interest rate remains fixed during the entire loan
tenure. Banks do not have the power to change it under any
circumstance until and unless the clauses mentioned in the
home loan agreement say so. Therefore, it is always recommended
to read between the clauses meticulously.
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