. Either a borrower goes for the fixed rate or for the variable or floating rate of interest attached to such loans. It may sound simple. A borrower will obviously select the one that he or she thinks best suitable for the purpose for getting a new home or renovating one.
Unfortunately the issue is not as simple as it looks. News flashes about the banks increasing home loan interest rates would inspire the borrower to consider the impact on equated monthly installments or EMI that is currently being paid. That is the time when one would feel mortgage at fixed rate could be the better option for the borrower. Brokers or legal advises will also give such suggestions.
It is assumed that once a borrower selects the fixed rate mortgage plan the interest rate will remain unchanged for the entire tenure or the period of repayment. Such rates would be irrespective of any subsequent increase in the rate of interest. However, this is not the reality. Making an informed decision is essential to avoid any unpleasant surprises at the end of it.
All the banks offering mortgage loans normally includes reset clauses on fixed interest rate in the home purchase loan concerned. Thus the rate that is currently applicable in respect of the loan won't be applicable at later dates. Some of the banks often include clauses regarding their rights to revise the interest rates due to fluctuations in real estate markets or after a fixed period. Thus, the fixed rate loan may not remain the same after such period specified or consequent upon market fluctuations.
Absolutely essential for the borrower is to learn whether there is any force majeure clause in the agreement concluded. If the banks or financial institution that is providing the mortgage loan to the borrowers keep a clause that they can alter the rates at discretion, it will be detrimental to interest of the borrower. In such cases the fixed rate home loans become meaningless and become a variable rate mortgage.
It could become fruitful changing either the loan scheme or the lender in such cases. Even transformation of the fixed interest rate loans into variable interest rate loans could help.
Switching providers is possible in the financial market today and that could be the one point solution.