Over the past it was easy to choose the home loan as
borrowers used to prefer floating rates as these are few percentage points
below the fixed rates.
But from few months the property prices have gone up and the
rising inflation has added to the dilemma of the potential borrowers. Besides,
the interest rates on home loans are also on rise due to various factors, this
lead to utter confusion in the minds of the borrowers.
Home loan borrowers
in state of confusion
There has been an addition in potential borrowers who are
earning good salaries but have confusion in their minds whether they should
take a loan now or wait for some more time. Earlier borrowers used to hook on
to floating rates, but in the recent times are mulled over migrating to fixed
rates. In fact, currently the fixed rates are high around 13 to 14 percent.
The question arise here wouldn't it be better to wait till
the rates dip and go fixed at lower rates? Whether the fixed rates are truly
fixed or fixed for three years? What in case the lender raises the rate after
you refinance? Do I have to repay to the lender till I retire from service?
Whether to switch from floating to fixed, at the next rate slide?
Uncontrolled
inflation adds to hike in interest rates
Rising inflation has worked as fuel in fire. Previously the
rates which were not showing signs of increase got a boost from uncontrolled
inflation. The blame for this should be put on worldwide inflation or the
soaring oil prices; however inflation touched a 13-year high of 11.42 percent
in the last week of June.
An immediate blow came when the Reserve Bank of India (RBI)
recently increased the cash reserve ratio (CRR) and the repo rate by 0.5
percent. In turn leading banks immediately passed on the burden of hike to the
borrowers.
Selecting the right
lender
One of the most important point on which almost every
borrower does not pay much deed is selecting a lender carefully. Selecting the
right lender is the most critical, yet often overlooked step, in the process of
choosing a home loan option.
Firstly search for a bank offering the cheapest rate. Compare the charges which
they take in the form of various fees. Make certain that the home loan lender
has a reputed reputation as a good lender to take loan from.
Some lenders offer low rates only to new borrowers but do
not pass this benefit to the existing borrowers. Discuss with other people and
find out during the past few years how many times has the lender increased
rates and how many times the lender has passed this advantage by lowering
interest rates of borrowers.
Floating rates
Do a proper search of fees and penalties. If you're planning
to take a long tenure loan, search for lenders who do not charge prepayment
penalties or foreclosure charges. Borrowers may prefer to repay loan from time
to time when they get any bonus.
Penalty on prepayment is yet another pinch on your pocket.
Yes, the lender has quickly passed on the burden of rate hike to the borrowers.
After all banks are business entities and not charity institutions. Yes a true
floating rate loan fluctuates both ways.
Steps for controlling
inflation
Long discussions have been done on controlling inflation. In
case the fixed rate is only slightly higher than floating, then you can explore
the option. And if you can turn over with sleepless nights and can afford to go
with fixed, then choice is obvious.
In fact fixed rates aren't really fixed. The lender has
attached all sorts of clauses to the fixed rate that gives him one-sided power
to push up your fixed rates. Carefully study these clauses as not all fixed
rates are 'pure' fixed rates.
Hopefully the borrowers get some relief soon from inflation
and will be able to see slide in the rates, at which point they can consider of
switching to a fixed rate.
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