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

Normally, when news media splashes reports on banks increasing housing loan interest rates in and their affect on Monthly Installments, you may take for granted that it is better to opt for fixed housing loan rates. In fact, your banker may also advise you to go for the same.

Now ideally as it should be, we assume that once you choose fixed rate plan for yourself the rate of interest will continue unaltered for the entire period you have fixed the interest rate for irrespective of any incidental increase in the same. But actually this is not always the case.

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

* Check the small print of a loan. The bank has the right to serve you 30 or 60-days notice that it intends to increase its 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 housing loan agreement papers, you can spot clauses 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 alterations in the interest rates on home loans they approve 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 home loan company you can save a lot of money over the life of your mortgage and in most cases the consulting cost is free.

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

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