Fixed-rate Loan Best
Banks are revising their base rates upwards by up to half a percentage point from October 1
, 2010 which will make loans costlier.
Base rate is the benchmark rate for a bank to fix the
interest rates on loans. According to RBI guidelines, it has to be reviewed by banks every quarter. The latest revision of the rate will remain effective for October-December period.
But this is not likely to affect the home-loan rate of major banks. In order to make
home-loan rate more attractive, most of the banks- state bank of India, Punjab National Bank, and HDFC Ltd, for the instance offer home loans at a fixed interest rate for the first three years. For example, SBI charge an interest rate of 8% on home loan for the first year and 9% in the second and third year. Similarly, PNB charges 8.5% for the first three years. HDFC Ltd also offers home loan at a fixed rate for the limited period.
The fixed rate for the initial period also provides a king of certainty about the interest burden on buyers for the initial period. The present rates of 8% and 8.5% offered by a number of banks are very attractive. In the last 10 years, the lowest rates at which banks offered home loan was around 7.5%, in 2004. But within a few months, the rates rose to 9%, which became 10% by 2007.
At present,
a home loan at around 8.5% is less than even inflation. On top of that one will get tax concessions on the loan borrowed to buy a house. On calculation, the effective interest rates after adjusting for tax benefits that one pays on a home loan comes to at least two percentage points less than the rack rates. That means, if you are buying a house taking a home loan, you are paying even less than the opportunity cost of money.
Bankers feel that as inflation is high, the RBI will act to increase interest rates. But as you are borrowing at fixed rates for the first three years, at this point of time, your EMI will not increase you are insulated from any likely rate hike in the near future. One percentage point hike in the interest rate, from 8% to 9% on a 20 year loan of Rs.1 lakh, results in an increase in EMI by Rs 64 from Rs 836 to Rs 900. So, if you have taken a home loan of Rs 50 lakh, your EMI will increase by Rs 3,200 or Rs 38,400 per year.
Courtesy:- Times Property 02-10-2010
For more information about home loan, cheap home loan, home loan against residential property, home loan against commercial property, flats, houses log on to http://www.zameen-zaidad.com
by: Rakesh Bhardwaj
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