Fixed Rate Floating Rate

Though banks claim to offer ‘Fixed rate loans’ most of these are accompanied by a reset clause. Only a few banks offer genuine fixed rates that remain fixed throughout the tenure of the loan, no matter what. Floating rate loans are linked to bank’s benchmark rate, so interest rates on these loans fluctuate with the benchmark rates. These loans are at least 2.5 per cent cheaper than a comparative tenure fixed rate housing loan. There is safety in numbers. Over 90 per cent of the home loan consumers opt for floating rate loans. If you no in for a floating rate home loan, you also get the benefit of reducing interest rates as (not if) and when th interest rate cycle turns and commences its downward journey. Even if the interest rates rise in the interim, as long as they do not rise above the 2.50 per cent differential, you are still a net gainer. Advises you to go in for a transparent floating rate loan unless, you want to play it completely safe and are willing to pay the premium (in terms of high interest rates) for such safety. In any case signing a fixed rate loan that is not a genuine fixed rate loan makes no sense. One thing to watch out for is that the banks must not reduce the floating rate applicable to you even though it is taking on new consumers at a lower rate. The only safeguard against it is to keep checking the market and if such a situation arises you should threaten to (and should actually) change your lender unless he actually gives you the benefit of the reduced rates. 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. Go window-shopping then bargain and then bargain some more. You should shortlist four or your loan depends a lot on your ability to negotiate. Interest rates offered by banks take your income and repayment profile into consideration. Apart from interest rates, also check various charges like processing fees, pre-payment charges legal fees valuation fees and other hidden costs. Once your application is accepted the inter-personal communication wit your banks begins which entails your assessment regarding loan repayment capacity. Now, follows credit appraisal and sanction of the loan. If all goes well your loan is sanctioned. If the banks is not convinced about your credentials, your application may get rejected. The sanction letter is an important piece of document. The bank will give you an offer letter informing you of the following: loan amount, interest rate (fixed or floating-linked) tenure, repayment mode and the general terms and conditions, which you will be asked to sign as acceptance.