Fixed verses
Floating Loans
Choose your loan
- floating or fixed rate loan.
If there is any banking product
that has changed the lives of many people, it is the
home loan.
The most logical point to start
your search for right lender will be the bank or finance
company with which you have an existing relationship.
That's just a starting point. Always evaluate at least
four options. The fact whether direct selling agents
are co-ordinating with you or you are dealing with
the bank directly can make a difference. And it matters
if the person co-ordinating with you is experienced
or a new recruit. But these are peripheral issues.
The big factors are the rate and transparency.
Some banks offer attractive insurance policies with
loans. But this is not really free. Some have the
cost spelt out while others have an inclusive package.
Bargain for the best policy that covers death and
disability. So the burden of the loan does not fall
on your family in case of some mishap. And the bank,
on its part, is also covered.
Always evaluate the prepayment
clause. It is likely that during the long course of
the loan tenure, you would want to prepay as much
as possible to reduce your interest cost. All banks
allow prepayment. Read the fine print to know the
clauses, which make prepayment difficult. It may not
be possible to bargain on this point but you can definitively
choose the lender whose terms suit you best. And,
finally, when you have made up your mind, take some
time before signing on the dotted line. Just in case
you want to revisit some aspect or another lender
offers you better terms (likely to happen at the last
moment).
Enquiry levels on fixed rate loans
have gone up. But even today, a majority of housing
finance customers are opting for floating rate. That
is the differences between the floating rate interest
and the fixed rate interest have increased. While
82 per cent of customers still opt for floating rate
loans, 18 per cent of customers now choose fixed rate
loans. That is more than double the percentage twelve
months ago.
Want advice on what type of loan - Floating or Fixed is best for you? Ask us - its free!
Fixed verses Floating Rate
Loan:
Go for a fixed rate loan:
The first couple of years of the loan is the period
when you pay the most interest cost. Forecasting the
outlook is though. Negotiate hard on the fixed rate.
Your calculation should be based at the reduction
rate if any offered by the bank every year.
It is fact that banks are queasy about passing on
the complete benefit of falling rates to existing
customers in the floating rate option (while at the
same time, offering lower rates to new customers).
As a borrower who took his loan a few years back says:
"It's more of a floating rate for the bank than
for the customer."
Go for a floating rate loan:
As another prospective borrowers puts it, "the
rates are falling and the floating interest rates
are lower than the fixed rates. By taking a floating
rate loan, I minimize my interest cost least for the
first 1-2 years when I don't feel that the rates are
going to rise. Further, nothing beats the low interest
rate offer for initial period when the interest burden
is the highest!" If you are one of those who
believe that the days of high interest rates are not
coming back, then it makes sense to go in for a floating
rate loan. With banks under pressure passing on the
benefits to existing customers, and customers becoming
more aware, you could get your bank to pass on timely
benefits in case of a future fall in interest costs.
Mix them up:
If you are unable to make your mind one-way or the
other on the fixed versus floating interest rate choice,
take both. Yes, you can take part of the loan on the
fixed interest rate and part of it on the floating
rate. This way, you further hedge your beats. Some
banks allow only specified proportions between fixed
and floating rates while others allow you to define
how much you would like on fixed interest and how
much on floating rate interest.
Get advice on the best loan for you!
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