Floating Vs. Fixed Rate Of Interest For Home Loans

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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.

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