Pick Loan Scheme Based On Market Conditions
Interest rate pattern
Interest rate pattern
Historically, it has been observed that interest rates follow cyclical pattern. They were at all-time lows during 2004-05, went up and peaked around 2007, came down during 2008-09, went up again and peaked around 2011, and are currently showing a downward trend.
Therefore, it is important to keep in mind that the interest rates will continue to fluctuate over time and those looking at availing a loan should plan theirloan schemes accordingly.
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There are many interest rate schemes to choose from:
Fixed rate scheme
Here, the interest rate remains fixed during the entire tenure of the loan. Usually, the interest rateoffered on this scheme is quite higher than the current interest rates in the market. This scheme is good for those who want to play safe and do not want any financial surprises during an uptrend in the interest rate cycle.
Since the interest rates are going down, you can look at striking a good bargain on a fixed interest rate loan scheme.
Floating rate scheme
The interest rate is variable here and keeps changing based on market conditions. The interest rate on a floating rate scheme is linked to the bank's internal interest rate - prime lending rate (PLR) or housing prime lending rate (HPLR). These vary based on the market conditions, or a change in the monetary policy of the Reserve Bank of India (RBI).
This scheme is good for those with high earnings' visibility, and those who have the ability to pay higher EMIs at times.A floating rate scheme is also advisable in the current market conditions as the interest rates are expected to go down in the short to medium terms. Borrowers can then benefit from significant savings in terms of interest outgo as a home loan is mostly a large one.
Hybrid scheme
In the case of a hybrid scheme,a mix of flavours - both fixed as well as floating - is offered. There are many variants of such schemes available in the market like a percentage of loan amount under the fixed rate and the remaining loan amount under the floating rate, or the interest rate remains fixed for the initial few years and then follows a floating rate scheme in line with the prevailing market conditions.
Since the interest rates are expected to go down in the medium term, it is not advisable to fix the rates during the initial years. On the other hand, those looking at playing safe can choose a hybrid scheme which has a part of the loan following the fixed rate and the remaining part following the floating rate.
Choosing bank
It is very important to choose the bank for the loan carefully. It is not easy to change the bank later. It will entail additional costs to change the bank. Since a home loan is a long duration matter, it is important to take some time out and be a little selective regarding the bank.
Salaried loan applicants should check the available offers at the bank where they maintain their salary account. Usually, banks offer a lower rate for salaried employees. Other important factors that should be considered include processing charges, legal fee etc.
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Villa plots in Bangalore, Office space,
Apartments with all amenities, villas in bangalore, homes bangalore.
by: Imtiaz
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