Once you resolve to avail a housing loan, the immediate thing that storms your mind is choosing between fixed and floating rate of interest. It is easy to get stuck at this point if you are not financially trained.
Normally, when news media splashes reports on banks raising home loan interest rates in and their affect on Monthly Installments, you deem it better to select fixed housing loan rates. In fact, your banker may also suggest you to go for the same.
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 incidental increase in the same. But actually this is not always the case.
Here we demystify the nature of fixed interest rate mortgage transaction for you so that you can make an educated 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 mortgage 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 modifications 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 housing loan company you can save a lot of money over the life of your home loan and in most cases the consultation cost is free.
Learn more about a premier Housing Loan advisory firm, providing Housing Loans with free mortgage broking.
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