But is it really the case?

The answer might come as a surprise to some. It hardly is the case. Confused over the mystery?

It really is no mystery. The reason for this article is to try to solve that mystery regarding the nature of fixed interest rate housing loan transaction for you so that next time, you could make an informed decision over the matter.

The answer, as always lies in the thick piece of document which is provided by the banks: the terms and conditions of the bank. The document which was signed by you, finalizing the details of the loan and accepting all the norms, as decided by the bank, is what allows banks to modify the definition of fixed as learnt and believed by you.

Every home purchase loan agreement document, as provided by the banks, includes a reset clause on fixed interest rate. This is the clause which makes it possible for bank to change a 7 percent rate of interest into a 14 percent rate of interest! So if you had taken the loan @ 10.5 per cent for 15 years, it does not mean that the same rate will be applicable all across the period.

For instance, State Bank of India (SBI), India’s largest public sector bank has introduced a clause in its agreement papers, as per which it has right to revise the fixed rate home loan after a period of two years. Canara Bank and Corporation Bank also have similar provisions to revise the rates after 5-years of disbursing the loan.

Public sector lenders are not the only ones who have this reset clause. All private sector banks and Non Banking Financial Corporations (NBFCs) also follow the same policies and the rates are revised from time to time.

If you read your home loan agreement papers carefully, you can spot this statement:

“Provided further that from time to time, the bank may in its sole discretion alters 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 the clause which gives banks and lenders the power to modify the interest rates on home loans they have sanctioned to their borrowers. This clause which questions the definition of ‘fixed’ is also better known as Force Majeure Clause.