By Dr Sanjay Chaturvedi, LLB, Ph.D.
Floating rate of interest is most preferred by housing finance companies since the risk of major change in interest rates reduces because of fluctuation in the interest rates. For the borrower, it is a 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 to reschedule the loan by enhancing the 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 have fallen down in 2001 -2003, those who have taken loans at 16.5 % in 1999, never given the advantage automatically. One has to be persuasive with the bank and beg for a reduction in spite of their right to 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 has been left nothing but to close the loan and take a new with some other banks.
The 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 your loan portfolio to other banks. The other bank may ask you an enhanced rate of interest or pay up the entire principal amount with interest. In fact, nothing is fixed.
The calculations become more complex with the compounding of interest with confusing calculations. One pays almost 3% more in the long run of 15 years. They are always kept on the higher side so that customer never opts for such higher interest rate. Why the bank is so concern and not offering the same rate for a fixed tenure. When fixed rates can vary from time to time for new customers, is there 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 change with time. Why not 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.