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08 August 2011

Fixed rate of interest in Home loans Facts

When the borrower has to choose the repayment schedule for home loans you have two choices. One is you borrow a home loan at fixed rate of interest and the other is at fluctuating rate of interest. In the prior you have a fixed rate at which the loan amount is decided and you pay your EMI every month of a fixed amount for the total loan tenure. In the other the bank has the authority to change interest as per market trends and financial economy. When you select a fixed rate of interest does it last till the whole repayment tenure of say 15 to 20 years?
Not really. You do not have a fixed EMI for the whole loan tenure. This lender will not tell you and you personally have o go through the home loan document in very detail. Understand each clause and then take the decision of selecting the loan repayment schedule. All banks have the clause in their agreement of home loans. The bank has the sole discretion to change any policies with regard to any changes in the rules, internal policies of the bank and monetary changes in the market.
Go through the home loan document very carefully and understand each clause. You can converse with your lender about the meanings of the different clauses in the agreement. If some points are not clear or do not suit you an request changes or try to come a understanding with your lending bank about this. Usually the bank does not keep fixed interest till end and as a result when you select the home loan on fixed rate of interest which is definitely on the higher side you end up paying more interest money in your monthly EMIs. Whereas your counterpart home loan borrower who has selected fluctuating rate of interest get the same home loan at a cheaper interest rate, though they have to bear the risk of unknown interests highs in EMIs.

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