NEWS & ADVICE : HOME LOANS
Fixed interest rates fading, giving way to floating rates
By Joseph Samson
Oct 7, 2009
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The declining interest rates are creating problems for fixed-rate home loan seekers. The offers present in the market allow new borrowers to avail fixed interest rates for three to five years. Thereafter, they have to shift to the prevailing floating rates.

At present, ICICI and HDFC are amongst a few that offer fixed interest rates, but the difference between their fixed and floating rates is huge. ICICI offers fixed rate home loan rates at 16 percent and the difference between the fixed and floating interest rates is 6.75 percent. HDFC offers a fixed interest rate of 14.25 percent and the differential between the fixed and floating rates in its case is 5.25 percent.

There are other banks like Axis that do offer fixed home loan rates with option of periodic revisions.

KVS Manian of Kotak Mahindra bank said that the volatility in interest rates have increased drastically since the beginning of the decade. Bankers attribute this volatility to global events and inflow of cross-border money. In addition, they expect that the global economic recovery would further increase the interest rates and in such a scenario adhering to fixed rates would be a loss to the bankers.

Rupa Rege-Nitsure, Chief economist, Bank of Baroda said. "What we saw in 2002-03 cannot be repeated. Interest rates in those days were benign. There was no retail demand" In 2002-03, the difference between fixed- and floating-rate products was between 50 and 200 basis points and many borrowers shifted to fixed-rate loans that time to ensure they did not suffer because of rising interest rates.

LIC, Housing Finance Director and Chief Executive Officer, R R Nair said that some lenders had faced problems in the past by offering fixed rate home loans. He said that around 2006 when the rates started increasing, the lenders offering fixed rates started losing.

Banks like BoR and BoM have also cut down interest rates as a part of the festive offer.

 


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