Once you resolve to take up a mortgage, the next thing that tempts your mind is selecting between fixed and floating rate of interest. It is easy to get dumbfounded at this level if you are not financially trained.

Usually, when the media splashes reports on banks raising mortgage interest rates in and their impact on Monthly Installments, you may take for granted that it is better to opt for fixed mortgage rates. In fact, your banker may also counsel you to go for the same.

Now ideally as it should be, we take for granted that once you select fixed rate plan for yourself the rate of interest will remain unchanged for the entire period you have fixed the interest rate for irrespective of any subsequent increase in the same. But actually this is not always the case.

Here we demystify the nature of fixed interest rate home loan transaction for you so that you can make an knowledgeable decision over the matter.

* Read the small print of your home loan document. You will find that the bank has the right to give you thirty or sixty-days notice period that it intends to increase its interest rates.

* The bank’s first-year rates are binding on the bank only for that short period of 1 or 2 months. The 2nd-year home loan rates are not binding at all. Neither are the bank’s 3rd-year loan rates.

* Force Majeure Clause

So, while you read your home loan agreement papers, you can spot statement like this:

“Provided further that from time to time, the bank may in its sole discretion alter the rate of interest suitably and prospectively on account of change in the internal policies or if unforeseen or extraordinary changes in the money market conditions take place during the period of the agreement.”

This is called Force Majeure Clause that enables the bank to undertake appropriate adjustments in the interest rates on home loans they approve to their borrowers.

So remember to look at refinancing every couple of years so that you do not pay too much. If you select a good housing loan company you can save a lot of money over the life of your mortgage and in almost all cases the consulting cost is free.

Learn more about a premier Housing Loan advisory firm, providing Housing Loans with free mortgage broking.

This entry was posted on Tuesday, October 27th, 2009 at 4:52 am and is filed under Mortgage Loan Rates. You can follow any responses to this entry through the RSS 2.0 feed. Both comments and pings are currently closed.