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When seeking Home Loan
Banks can change rates of even a fixed-rate loan
The interest rate being offered by a lender should not be the sole consideration, while choosing a home loan scheme.
Reset and force majeure clauses give banks the leeway to change the interest rate even on fixed rate loans at a pre-determined interval as mentioned in the agreement.
The period mentioned in the reset clause varies from bank to bank. It usually is in the range of 2-5 years.
If you are keen on a fixed-rate loan, opt for the lender who has a clause to reset rates only after three or more years.
Check the historic PLR/base rate data of banks to gauge how often they change their lending rates. There have been instances of some lenders luring customers with an attractive floating rate and then quickly increasing the rate once the EMI starts.
Donít opt for direct disbursement of home loan to the builder. You can be in control of the situation if you are the intermediary between the bank and the builder. This will be of help if you have some dispute with the builder.
Service-related issues also gain significance in a home loan since such loans are of a long tenure of 15-20 years.
3 types of Home Loan Rates
1. Teaser Rates - It is a combination of fixed and floating rates. The home loan rate is fixed for the first 2-3 years and subsequently becomes variable. The fixed rate is usually 1 to 1.5% lower than the prevailing floating rate. Products offering teaser rates are no longer in the market.
2. Dual Rates - It is a combination of fixed and floating rates just likes teaser rates. But, the fixed rate is 1-1.05% higher than the floating rate. At present, ICICI Bank, HDFC and LIC Housing Finance offer such loan products.
3. Fixed Rate - As the name suggests, the rate is the same throughout the loanís tenure. But such loans usually come with a reset or force majeure clause. Axis Bank offers home loan at a fixed rate of 11.75% for tenure of 20 years. This is the cheapest fixed rate home loan scheme in the market.
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(updated - 07 Dec 2011)