Variable Or Fixed What Will Be The Decision

Once you resolve to take up a home loan, the immediate thing that storms your mind is selecting between fixed and floating rate of interest. It is easy to get stuck at this point if you are not financially trained.

If the media and banks are shouting about increased interest rates you make feel pressed to go and rush into fixing your home loan rates. Your bank or financial advisor may even recommend this.

Now ideally as it should be, we assume that once you select fixed rate plan for yourself the rate of interest will continue unchanged for the entire period you have fixed the interest rate for irrespective of any subsequent increase in the same. But in reality this is not necessarily the situation.

Here we demystify the nature of fixed interest rate mortgage transaction for you so that you can make an knowledgeable decision over the subject.

* Read the small print of your home loan document. You will find that the bank has the right to give you thirty or sixty-days notice period that it intends to increase its interest rates.

* The bank’s first-year rates are binding on the bank only for that short period of 1 or 2 months. The 2nd-year home loan rates are not binding at all. Neither are the bank’s 3rd-year loan rates.

* Force Majeure Clause

So, while you read your home loan contract, you can spot statement like this:

“Provided further that from time to time, the bank may in its sole discretion alter the rate of interest suitably and prospectively on account of change in the internal policies or if unforeseen or extraordinary changes in the money market conditions take place during the period of the agreement.”

This is called Force Majeure Clause that enables the bank to undertake appropriate adjustments in the interest rates on home loans they sanction to their borrowers.

So remember to look at refinancing every couple of years so that you do not pay too much. If you select a good mortgage broker company you can save a lot of money over the life of your housing loan and in most cases the consulting cost is free.

Learn more about a premier Housing Loan advisory firm, providing Housing Loans with free mortgage broking.