Fixed v/s Floating Interest rate on Housing Finance
By Dr Sanjay Chaturvedi, PhD, LLB (Gen)
Floating rate of interest is most preferred by housing finance companies since risk of major change in interest rates reduces because of fluctuation in the interest rates. For borrower, it is high risk game. In 2006 those who have taken loans on 7.5% floating, now it has touched almost 13%. It impacts on the home budget and chances of defaults increases. Housing finance companies offer rescheduling the loan by enhancing loan period to cope up with enhanced EMI. This again bad for the borrower since he has to pay further increased loan tenure.
When the rates fallen down in 2001 -2003, those who have taken loans at 16.5 % in 1999, never given the advantage automatically. One have to be persuasive with the bank and beg for reduction in spite of their right for reduction.
Home loan interest rates have recently reduced again and have touched 9.75%. But existing customers will not get the benefit. This double sided policies of banks will create social unrest among the borrower who have been left nothing but to close the loan and take a new with some other banks.
Fixed loan also never fixed for the loan tenure. Housing finance companies have asked you sign a blank agreement where you have given rights for securitisation. The bank can sell you loan portfolio to other banks. The other bank may ask you an enhanced rate of interest or pay up entire principle amount with interest. In fact, nothing is fixed. The calculations becomes more complex with compounding of interest with confusing calculations. One pays almost 3% more in the long run of 15 years. They are always kept on higher side so that customer never opt for such higher interest rate. Why the bank is so concern and not offering same rate for a fixed tenure. When fixed rates can vary time to time for new customers, is these not a fluctuating rates? And when fluctuating rates can go high and low, then why not to have a single rate for? Ultimately both type rates changes with time. Why not to have rates which can be constant and also flexible. PNB Housing Finance had introduced such rates for the first time in the country a Flexifix rate to cope up with the process and give maximum advantage to the customers.