Which interest rate do we opt for; fixed or floating? This is a very common question we receive at Apnaloan.com.
Apnaloan has taken a clear stand in this regard. Opt for a TRANSPARENT FLOATING or ADJUSTABLE RATE of interest for a home loan.
(Click here for a detailed feature on the advantages of the transparent floating rate.)
But, what do we really mean by a transparent floating rate of interest?
In a transparent floating rate home loan, the benchmark rate (the rate on which the applicable interest rate is determined) is publicly available and market-determined.
The best example of this is the US markets, where the floating rate home loan is linked to the 10-year government bond yields. The loan consumer can calculate the interest rate applicable by himself and does not need the bank’s help.
Unfortunately, such transparent floating rate loans are not available in India.
So what other option does an Indian consumer have?
The second option is to calculate the interest rate on a home loan based on a widely-used internal rate of the bank itself. As of today, the most widely-used interest rate used by a bank is its fixed deposit rate (or the interest rate that the bank offers on an FD).
The bank will not fix this rate arbitrarily, since it affects its cost of funds as well as availability of funds. Unfortunately, even this kind of transparency in floating rate is not easily available in India.
So, the only possible way for an Indian consumer to check whether the bank offers a transparent interest rate is to check its record of benchmark rates in 2002 and 2003. This data will help you gauge whether the bank has actually passed on the benefit of reduced interest rates to its existing consumers at the time when the lending rates had fallen rather dramatically.
The changes in the benchmark rates by three leading home loan lenders are available on our website Apnaloan.com. Compare these charges to any other information you may have received from any other lender that you are considering, before taking a decision.
Reiterating what we said earlier, the best bet on an interest rate is to opt for a floating rate of interest while taking a housing loan.