Am I paying too much interest rate for the home loan?

Recently, a colleague of mine took a home loan but always had a question at the back of his mind that was he paying more. Interest rates have been on a roller coaster ride since last six years which has bewildered consumers all over the country.

When you have a look at the economic charts of India since 2000, you can easily make out that in March of the said year the interest rate on home loan was about 14{ef6a2958fe8e96bc49a2b3c1c7204a1bbdb5dac70ce68e07dc54113a68252ca4} but soon they fall down steeply. And the last quarter of year 2003 witnessed that the interest rate on home loan was about 7{ef6a2958fe8e96bc49a2b3c1c7204a1bbdb5dac70ce68e07dc54113a68252ca4}. But after that the interest rates have moved northward and the interest rates saw a little rise in the year 2004 and the last 18 months the rates have risen at very high pace.

The interest rate on a floating home loan by September 2006 was 9.50{ef6a2958fe8e96bc49a2b3c1c7204a1bbdb5dac70ce68e07dc54113a68252ca4}. Even after that there was a buzz in the market the interest rates would again raise but there are some conflicting views also in the market. The U.S. market however suggests that there would be slowdown in economy which would ultimately lead to the softening of interest rates in this year. But the economy in India is moving up at high pace at over 8{ef6a2958fe8e96bc49a2b3c1c7204a1bbdb5dac70ce68e07dc54113a68252ca4} per annum which would lead to more demand for money from business houses for their expansion plans.

Now there is a question for the consumer as to what he has to do in this present situation? Should he wait for the interest rates to stabilize or look for the safety of a fixed rate home loan even if he has to pay a huge premium?

For a consumer, this is not a one-time decision because even if he chooses to go with a fixed rate, then he needs to review his judgment once a year in order to check that his decision needs to be revised or not. But even before a consumer decides the rate plan he want to go with, he needs time to comprehend all possible intricacies related with interest rates.

A consumer should know that if he is going for a fixed interest rate then it is fixed for life time or just for a period of three to five years.  In case of the former, a consumer is assured that the interest rates would not change midway during the tenure of the loan whereas the latter one indicates that the fixed amount would never be fixed during the tenure. Even if you suppose that the interest rate is fixed for the entire tenure, the home loan agreement always offer bank with a clause which permits it to increase the so called fixed interest rate.

A consumer should understand that the floating rate would always be transparent one. In the case of floating interest rate, one should possess knowledge about the benchmark to which the rate has been linked, that is whether it is linked to MIBOR, FD rate, prime lending rate or mortgage specific rate. Market analysts advice that it is always better to go for a transparent floating rate home loan or you should sign a true fixed rate loan agreement.

Real Estate India, Properties Video