Fixed interest rate on home loan
Monday,21st April 2008
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While the interest rates are a deciding factor in
taking a home loan, we must remember that this is not a one-time decision. Be a vigilant consumer even if you have opted for a
fixed rate of interest. As a matter of practice, assess how the markets have
moved in a six-month period and consider the costs and benefits of changing
your decision. A well informed consumer makes better choices. So,
let's try and get to the nuances of the interest rates options. A genuine fixed interest rate is one which
remains fixed during the entire tenure of the loan. It should be such that the
bank does not have the power to change the rate under any circumstances. But very few banks offer actual true-blue
fixed interest rates. There are two basic types of 'fixed' rate housing loans:
The interest rates under a pure fixed rate loan
remains constant throughout the home loan tenure. This means that the interest
rates do not fluctuate with a change in the market rates. This
is unlike the regular fixed rates (fixed for 3-5 years) or floating rates
where the rates are brought up for review periodically. This
is also the reason why pure fixed rate loans are costlier as compared to a regular fixed rate home loan or a floating rate loan. However, most lenders do not offer home loans on pure fixed interest rates due to constant interest rate fluctuations in the recent times.
These
are regular fixed interest rate home loans, during which the interest rates
remain constant for a pre-decided time period which is mentioned in the home
loan agreement. Most banks offer home loans on 'fixed' interest rate which
remain constant for 3 years and 5 years. Home loans having a 'fixed' rate for 3 years, have a constant interest rate for the
initial three years of the home loan tenure, after which it is subject to
review. At the end of the 3-year period, the interest rate could be aligned
with the prevalent interest rates at that point in time. Housing
loans, which have interest rates, fixed for 5 years have a clause which
permits their review after the initial 5 years of the loan tenure. The 5-year
fixed rates are higher compared to 3-year fixed rate loan by about 0.25-0.50
per cent. |
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