Home Loans - No More Doing the Borrowers’ Way

May 15, 2007	(1 votes, average: 3 out of 5)  Loading ...
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In an effort to secure books amid soaring interest rates and increasing frauds, banks have decided to come up with new guidelines in home loan agreements. However, these new clauses are believed to cripple already suffering borrowers who are struggling with their budget to pay higher Equated Monthly Installments (EMIs).

Some banks are no more lending fixed rate loans beyond a few years whereas a few have set an early reset clause. There are a few banks which are insisting on a lock-in-period during which a switch from fixed to floating rates is not possible.

Floating rates have been continuously rising and have increased by three to four percentage points over the past 18 months to 11.5-12%. This encouraged the home loan borrowers to look towards fixed rate loans despite a higher rate.

As the name signifies, a fixed rate loan protects the borrower against the risk of increasing interest rates. But a reset clause will enable banks to charge a higher rate at the time of reset in case interest rates go up.

IDBI bank and Union Bank do not lend fixed rate loans above five years. However, the Union bank has not brought any increase in its interest rates for existing floating rate customers. This indicates that they are getting the loan at a fixed rate of interest even the rates have shot up.

Both the fixed and floating home loans are losing their relevance in present day’s scenario. There are other banks which are offering a long term fixed rate option, but with a reset clause. Bank of India has reduced its reset option on fixed rate home loans from 10 years to five years.

Talking about the largest bank in the country, State Bank of India has a reset clause at the end of two years; it is five years in case of Punjab National Bank and Canara Bank whereas Allahabad bank has a reset clause at the end of three years. PNB has introduced a lock-in clause in loan documents. It prevents a customer to change from floating to fixed and fixed to floating within three years of borrowing a home loan.

News Published Under:   Home Loans |