how to reduce intrest rates

Interest rates depend on various factors, including the availability of money in the market (liquidity), inflation and monetary policies. If you opt for a floating rate loan, your home loan installments will keep changing with fluctuations in interest rates.

In contrast, a fixed-rate loan might mean that your monthly outgo is calculated at a higher interest rate even when the market is flush with liquidity and funding is cheap. To keep your total interest outgo at the minimum, you need to know whether it is time to opt for a fixed or a floating rate loan.

THE RIGHT OPTION

The interest rate for most loans is linked to the lender’s base rate, which is decided by the banks based on the Reserve Bank of India guidelines. As banks review their base rates at least once in a quarter, your interest rates may go up (or down) based on the call taken by the bank.

In contrast to floating rates, fixed rates are expected to remain the same for the entire term of the loan. Fixed rates are generally 0.5-1.5 percentage points higher than the prevailing floating rates.

Though fixed rate loans are disbursed at a higher rate to compensate for the risk of rate fluctuations, several banks offer fixed interest rates only for a specified duration, after which the loan rate is realigned with the prevailing market rate.  The interest rate is revised every five years and the reset rate always remains higher than the prevalent floating rate by the fixed margin.

Comparing home loan interest rates of various lenders is not enough. How do you ensure that your home loan does not turn out to be too expensive over the duration of the loan?

“Most banks reserve the right to change even the fixed rate at their discretion under various conditions and it may not be possible for the clients to verify this,” says Vipul Patel, director, best home Loans Advisors, a mortgage advisory firm.

Fixed rates provide you protection from rate fluctuations and give you a sense of security and certainty in terms of your cash flow even when market rates are rising. Generally, fixed loans have higher exit charges and pre-payment penalties. These may also have more restrictions on partial pre-payment.

“Floating loans offer more flexibility in terms of pre-payment, but these also require regular monitoring for changing interest rate scenario and its impact on your cash flow,” adds Patel.

MAKING A CHOICE

The decision to choose floating rate or fixed rate should depend on their difference, various economic factors, and outlook. One important factor that can be easily known is the difference between floating and fixed rates and the level of interest rates at the time.

“If a person feels that interest rates are high currently and likely to come down, he should opt for a floating rate,” says Renu Sud Karnad, managing director.

You should go for a fixed interest rate if the current rates are low. “Interest rates had corrected sharply from around 14% in 2000 to 7% in 2004 and the difference between fixed and floating rates was just about 0.5 percentage points at that time. I reckon that was a very good opportunity to take fixed-rate loans. But not everyone opted for a fixed rate as the greed of rates going down further made a lot of borrowers opt for floating rates,” Karnad points out.

You should also factor in your risk appetite while choosing between fixed and floating rates. If you want stability in terms of cash flow, a fixed loan that remains the same during the entire term might be a good option. However, you need to ensure that the interest rate is low enough to enter into a long-term loan contract.

Article source:- http://www.businesstoday.in/moneytoday/cover-story/reduce-interest-rate-burden-when-repaying-home-loan/story/18132.html

how to choose which lender is giving best home loans.

In general most of people taking home loans, either for the buy of a prepared to-move-in house or for booking an under-development property. Be that as it may, individuals can likewise profit of home credits to get their home built – either without anyone else, or by utilizing a temporary worker to build the house – on a plot that they claim. Such credits are ordinarily named as ‘development advances’. The procedure of endorsement and dispensing of a development advance, is not quite the same as that of a consistent lodging credit.

Records to relate to application

Notwithstanding the consistent ‘know your client‘ (KYC) and pay archives, to profit of a home credit for developing a house on a plot of land possessed by you, you should give the planned loan specialist all the important records that build up your title and responsibility for plot of the land. The plot of land can either be a freehold plot, or it can be dispensed by any advancement specialist, as CIDCO, DDA, and so forth. You can likewise benefit of an advance on a leasehold arrive, where the rent is for a sensibly drawn out stretch of time. You will likewise need to present a no-encumbrance endorsement relating to the property.

Notwithstanding the records of the plot, you should present the arrangement and format of the proposed house, appropriately endorsed by the nearby city expert or gram panchayat. You will likewise need to present a gauge of the cost of development, which has been ensured by a structural designer or an engineer. In view of these records, if the moneylender is fulfilled about your general qualification and the gauge of the cost presented by you, it will endorse the home credit subject to the standard terms and conditions.

Edge cash

Similarly, as with some other home loans, the borrower should contribute the edge cash towards development of the house, contingent upon the measure of home credit that is asked. While figuring your commitment, the cost of the plot is additionally considered, if the same has been acquired as of late. In any case, the esteem/cost of the plot isn’t considered while registering your commitment, if the same has been acquired by your or is gotten as a blessing or on the off chance that it was obtained long back.

Payment of the credit

The payment of the development credit is done in parts, and the cash is discharged, in view of the advance of the development, like the procedure took after when an under-development level is reserved with a designer. Nonetheless, the loan specialist won’t dispense any cash till you acquire your own commitment as concurred and give confirmation of the same. For profiting payment from the bank, you should submit photos of the house and declarations from a draftsman or structural architect about the phase of finish of the house.

The home loan specialist may depend on the testament and photos presented by you, or it might choose to depute its own specialized individual to check the same. In this way, if the development is finished rapidly, the payment of cash by the moneylender will likewise be quicker.

Driving moneylenders like SBI, Piramal housing Ltd, ICICI Bank, and so forth., are dynamic in the development advance fragment. Notwithstanding, not every one of the moneylenders that give home advances, will likewise give development advances. A few loan specialists are not happy with financing such self-developed properties.