HAVE a question on home loans? Expert Harsh Roongta offers his insights.
Your Query: Am looking for a housing loan. I have already received an approval from HDFC Bank for a loan of Rs 3, 70, 000. Should I opt for a 'floating' or 'fixed' rate of interest? The loan tenure is 20 years and the 'fixed' rate of interest is 13.25 %, while floating rate is 11%.
Secondly, there has been a change in SAFA (South Asian Federation of Accountants) rules of HDFC Bank. The loan agent tells us that due to rate hike all SAFA Rules have been cancelled. Is that correct?
Harsh says: I strongly recommend a home loan with a transparent floating rate of interest. Here's why.
A true-blue 'fixed' interest rate is one that remains fixed during the entire tenure of the loan. It should be such that the bank does not have the power to change the rate under any circumstances. Very few banks offer actual true-blue fixed interest rates. Unlike the 'fixed' interest rates on the home loans, the bank can change the floating rates.
As a consumer, it makes sense to opt for 'transparent floating' interests on home loans. This essentially means that the interest rates should move downward when general interest rates register a fall and move upward when the general interest rates move up.
- Smart tool: Have you evaluated your debt status?
To check if your bank offers a 'transparent floating rate of interest' on home loans, request for the bank's records of benchmark rates in 2002 and 2003. This data will help you gauge whether the bank has actually passed on the benefit of reduced rates to its existing consumers at the time when the lending rates had fallen.
My choice of transparent floating rate is based on certain criteria:
1. These loans are at least 2% cheaper than a comparative tenure fixed rate home loan. There is safety in numbers. Over 90% of the home loan consumers opt for floating rate loans.
This is a potent and large community, which the politicians can ill afford to ignore (witness the imbroglio when the PSU banks tried to raise their home loan rates) and hence a dramatic increase in rates in a short time is very unlikely.
Apnaloan.com is an online guide for those who seek retail loans. Apnaloan also helps loan consumers to get best rates by making banks compete for their loan.
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