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To or not to opt for Floating rate
Home Loans?
Nearly, all banks are bringing a hike in interest rates on
home loans and no stability can be seem if past years are
taken into account. It was around 14% in March 2000, and started
dropping down. The interest rate on a floating rate home loan
fell to 7%. Then, the rates begin to rise and now they are
through the rooftop. This has rendered a feeling of anxiousness
among home loan users making them felt that they are paying
more.
What recent coverage shows is a conflict
on the immediate outlook for interest rates. The economy has
been galloping away at over 8 per cent per annum thereby attracting
more demand from the corporates to fund their expansions.
This is contrary to the trend that exists abroad. There is
a slowdown in the economy resulting into a softening of interest
rates on home loans. This has undoubtedly made the interest
rate outlook rather vague.
The overall scenario made the decision tough
for a common home loan shopper, who is getting baffled between
whether to choose floating rate cheap home
loan and bear the risk of being
hit by high interest rate in future or fixed rate home loan
that offers security but demands large premium.
To be on a safer side, the individual must
understand the complexities with home loan interest
rates on home loan before buying any. Obviously,
the interest rate cannot get changed midday during the tenure,
the fact which clearly shows that fixed need not be fixed
in actual. Likewise, a transparency should be there in floating
interest rates which encourages the need for you to know the
kind of benchmark on which the floating rate is linked to.
It can be linked to MIBOR/FD rate/prime lending rate/mortgage
- specific rate.
Often, it is advisable to go with transparent floating rate
home loans because of following reasons:
1. These loans are generally cheaper than
a comparative tenure true fixed rate loan.
2. Most people prefer to go for floating
rate as these are seldom changed in short time period which
offers a sense of security to home loan buyers.
3. Floating rate loans provide the benefit
of reducing interest rates in case the interest rates begin
to drop. Contrary to this, if the interest rates rise in
the interim, and do not witness a hike above the 1.50 -
2.00% differential, you are still at a net gainer.
Therefore, you may apply for the floating rate loans if ready to pay high premiums to avail the maximum security.
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